Preamble

The House met at half-past Two o'clock

PRAYERS

[MR. SPEAKER in the Chair]

PRIVATE BUSINESS

YORK CITY COUNCIL BILL [Lords] (By Order)

CITY OF WESTMINSTER BILL (By Order)

TEIGNMOUTH QUAY COMPANY BILL (By Order)

LONDON DOCKLANDS RAILWAY (BECKTON) BILL (By
Order)

Orders for Second Reading read.

To be read a Second time upon Thursday 26 February.

Oral Answers to Questions — AGRICULTURE, FISHERIES AND FOOD

EC (Two-tier Pricing)

Mr. McQuarrie: asked the Minister of Agriculture, Fisheries and Food what assessment he has made of the impact on British sheep producers of a two-tier pricing policy.

The Minister of State, Ministry of Agriculture, Fisheries and Food (Mr. Gummer): I apologise for the absence of my right hon. Friend the Minister of Agriculture, Fisheries and Food, who is in the USSR, where tomorrow he hopes to sign an agreement with the Russians.
We successfully resisted the Commission's proposal for a two-tier support system for sheep at last year's price fixing. The system proposed would have penalised efficiency and deterred structural improvements, and would have disadvantaged our farmers by about £8 million.

Mr. McQuarrie: Will my right hon. Friend confirm that the average United Kingdom flock is four times greater than that in the EEC? Does he agree that the comments of the alliance leader in support of the two-tier structure would, as the president of the National Farmers Union has said, annihilate the British sheep industry?

Mr. Gummer: I am sure that my hon. Friend is right and that the two-tier pricing system would do nothing but harm to Britain. The two-tier pricing system suggested by the right hon. Member for Plymouth, Devonport (Dr. Owen) could mean that cereal farmers would transfer to sheep production. That would damage not only the cereal farmers but all who produce sheep in the United Kingdom.

Mr. Livsey: What negotiations will the Minister enter into this year to ensure that the sheepmeat regime

continues successfully in the United Kingdom? Is he aware that the commissioner, Mr. Andriessen has stated that there will be a review this summer? I am glad that he has acknowledged that the alliance has no plans for a two-tier pricing system for the sheep industry.

Mr. Gummer: We shall seek a prudent pricing policy for all major commodities. We must continue to fight for the key beneficial elements of the sheepmeat regime and resist discriminatory cuts. The right hon. Member for Devonport did suggest that he accepted the possibility of two-tier pricing for sheepmeat.

Mr. Adley: Is my right hon. Friend aware that many members of the Dorset National Farmers Union believe that the arrangements for lamb and other products from New Zealand are a considerable disadvantage to them? Can he state whether that agreement will remain indefinitely?

Mr. Gummer: We believe that we owe a particular debt to New Zealand. We sought to negotiate permanent arrangements for the access of New Zealand products into the Community when we joined it, and we stand by our promise.

Mr. Home Robertson: I apologise for the temporary absence of my hon. Friend the Member for Pontypridd (Mr. John), who is not in Russia. I presume that the Minister of Agriculture, Fisheries and Food has gone to the Soviet Union to learn something about public relations.
Before the Minister gets too carried away about the deficiencies of SDP policy, may I gently remind him that his policies are not going down too well at present with the NFU or with the Department of the Environment? Will he hazard a guess as to how much longer it will be before increased sheep production on low ground leads to surplus mountains of lamb under the present chaotic trends?

Mr. Gummer: We are used to the doom and gloom of the Labour party. Opposition Members complain if something is in surplus, but they also complain if there is no surplus. However, sheepmeat is not in surplus. We produce an extremely good product and I have no doubt that we shall continue to dominate the market.

Falklands Fisheries

Mr. Tony Lloyd: asked the Minister of Agriculture, Fisheries and Food what discussions he has had regarding the improvement of fishing opportunities for British fishermen around the Falklands.

Mr. Gummer: I have had occasion to discuss with a number of British companies their plans for fishing around the Falklands. Through joint venture arrangements, British companies have interests in more than 70 vessels licensed for the 1987 squid fishery, in addition to having taken up three licences for British flag vessels. That is a considerable improvement upon last year.

Mr. Lloyd: Is the Minister aware of reports in the media that British fishing is being disserviced by this licensing system? The Spanish have already been granted 36 licences, compared with the three that the hon. Gentleman mentioned for British ships. What steps will he take to ensure that the British deep water fleet will have an opportuniy to fish in these valuable waters?

Mr. Gummer: I have fought continuously to encourage the British fleet to seize any opportunity available to it and I shall continue to do so. It is my intention that the British fishing fleet should take its proper part in the world fisheries, and I shall continue to press that.

Mr. John Townend: Has my right hon. Friend considered the suggestion by a leading member of the deep sea industry, who lives in my constituency, that the Government should negotiate with foreign countries to allow their fishing boats to have fishing opportunities in the Falklands waters in return for our industry being given fishing opportunities in their waters?

Mr. Gummer: I have seen that report. No doubt it will be considered not only by me but by my right hon. and learned Friend the Foreign Secretary, within whose ministerial responsibilities a good deal of this matter falls.

Dr. Godman: On the assumption that such fishing activities in Falkland waters will be undertaken by, say, vessels of more than 50m overall length, will such trawlers be allowed to fish in United Kingdom waters when not fishing in the south Atlantic?

Mr. Gummer: The hon. Gentleman must accept that the system that we use to restrain the ability to fish in order to be in line with the availability of fish in British waters and in European waters as a whole could not be destroyed by the situation in the Falklands. We would have to keep the rules as we have them. One could not give special permission or special opportunities to those who happen to fish in the Falklands waters.[Interruption.] Those Opposition Members who know nothing about the fisheries regime — such as the hon. Member for Workington (Mr. Campbell-Savours) who, as usual, shouts from a seated position—will know that the hon. Gentleman who asked the question knows what the answer means.

Mr. Bowen Wells: How much revenue will the Falkland Islands Government gain from the licences issued so far?

Mr. Gummer: I cannot tell my hon. Friend the answer to that question. It is a matter for my right hon. and learned Friend the Foreign and Commonwealth Secretary.

Mr. Randall: will the Minister encourage the Falkland Islands Government to give far greater priority to issuing licences to British companies involved in joint ventures? At the moment it is cheaper for countries such as Poland to get a licence, which in fact is a foreign flag licence rather than a joint venture licence.

Mr. Gummer: I am satisfied that British interests were more than fairly accommodated in the allocation of licences, but I will look at the point that the hon. Gentleman has raised.

European Community (Two-tier Pricing)

Mr. Ralph Howell: asked the Minister of Agriculture, Fisheries and Food what representations he has received on the implications of adopting a policy in the European Economic Community of two-tier pricing.

Mr. Gummer: We have received such representations, many of which point to the likely discrimination against the United Kingdom, of the two-tier pricing system and remark that the leader of the SDP's two-tier pricing policy

would mean that only 30 per cent. of British grain would gain Community support, as against as much as 80 per cent. of continental production.

Mr. Howell: I thank my right hon. Friend for his reply. Is he aware that these proposals have been totally dismissed by the NFU and by its president, Simon Gourlay, as they woud mean that farmers in Britain would miss out tremendously compared with the rest of the European Community? Furthermore, will he give serious consideration to an overall set-aside system to reduce surpluses?

Mr. Gummer: As my hon. Friend knows, we have been pressing the set-aside system in the European Community, and we shall continue to do so. It is now part of the proposals on the socio-economic scheme. I agree with my hon. Friend that the proposals put forward in the Bledisloe lecture were serious for Britain and would have meant that British farmers would have suffered losses and continental farmers would have gained.

Mr. Maxwell-Hyslop: Does my right hon. Friend agree that it is the two-tier principle that is wrong and that once this alliance-backed policy is accepted—it would cut out most British farmers—the argument would no longer be one of principle but only one of degree?

Mr. Gummer: My hon. Friend is perfectly right. It is clearly wrong to discourage the most economic producers of cereals. That is not a sensible way to ensure that farming develops properly. The way to deal with the problem of surpluses is to reduce the land area used for growing cereals by enabling people to do something else on marginal land.

Mr. Home Robertson: Whatever else may be said about the two-tier pricing system, it is at least a policy, which is more than can be said for what is coming from the Government. If the shambolic performance last week was actually supposed to be the launch of a policy, does the Minister seriously expect a diversification package worth £25 million to have a significant impact on a surplus problem which is costing the country £1,600 million? I commend to the Government the positive and comprehensive ideas put forward by the Labour party in its Green Paper on agriculture.

Mr. Gummer: It is a little difficult for the hon. Gentleman to commend to us a Labour party Green Paper which was published at the personal expense of the Labour spokesman on agriculture because the party would not pay for it. It is extremely difficult to take that document seriously because, as I understand it, it runs counter to Labour party policy and does not mention the Labour party's proposal to rate agricultural land.

Sir Anthony Grant: Is my right hon. Friend aware that in condemning the foolish two-tier pricing policy of the SDP the president of the National Farmers Union said in effect that the right hon. Member for Plymouth, Devonport (Dr. Owen) did not have the faintest idea what he was talking about? Would the right hon. Gentleman not be better informed and make less foolish remarks if he took the trouble to turn up at Question Time when agricultural matters are dealt with?

Mr. Gummer: I am sure that my hon. Friend is right about that, but I find it even more surprising that at the NFU meeting last week—at which I was present—the


hon. Member for Caithness and Sutherland (Mr. Maclennan), who is the alliance spokesman on this subject, told the farmers that the 140-tonne proposal had never been put forward, even though it was in the Bledisloe lecture.

Agricultural Holdings (Rates)

Mr. Soames: asked the Minister of Agriculture, Fisheries and Food what assessment he has made of the impact on the net income of the average dairy farmer in the United Kingdom if rates were imposed on farm buildings and land.

Mr. Gummer: No assessment can be made of the impact of rating on specific sectors, but the value to the agriculture industry as a whole of the current derating policy is of the order of £430 million a year. Any departure from this policy would clearly have a devastating effect on the profitability of the industry in general and of the dairy sector in particular.

Mr. Soames: Will my right hon. Friend confirm that the Conservative party, unlike all the Opposition parties and factions, has no intention of introducing the rating of agricultural land? Does my right hon. Friend agree that it would significantly raise farmers' costs and would be likely to destroy a very large number of vital jobs in the countryside?

Mr. Gummer: It would also increase the price of food. That is the policy of the official Opposition, but I cannot help my hon. Friend on alliance policy. The Liberals announced their intention to tax all land in the document "These are Liberal Policies", which was published in 1986, but I understand that in a Standing Committee yesterday the Liberal spokesman on the countryside said that he no longer believed in it, so I do not know where the Liberals stand.

Mr. Beith: Has the right hon. Gentleman forgotton that it was from the Conservative Benches that on 21 May 1985 the hon. Member for Southend, East (Mr. Taylor) introduced a Bill to rate agricultural land and that he and his Minister had to follow Liberal Members into the Lobby to defeat that attempt to rate agricultural land? Will he take it from me that the Liberal party is not, was not and will not be—any more than the rest of the alliance—in favour of rating agricultural land? Will he stop trying to spread falsehoods and concentrate on the crisis facing the agriculture industry?

Mr. Gummer: The hon. Gentleman now tells us that the Liberals were against rating agricultural land in 1985, in favour of the taxation of agricultural land in 1986 and are now against it in 1987. Perhaps they thought that there would be an election in 1985 and that is why they have changed their ideas again this year.

Mr. Hawkins: Can my right hon. Friend tell me how long it would take to rate agricultural land, and the likely cost of doing so?

Mr. Gummer: I cannot give details, and I do not believe that the Labour party has worked out that part of the programme. The cost would, of course, be additional to the large sums that the Labour party is proposing should be spent out of taxation. That may be why the Liberal party turned to a straight taxation system rather than a rating system.

Mr. Deakins: As local authority services in rural areas contribute to the prosperity of agriculture and those who work in it, what would be the impact if those services were not available?

Mr. Gummer: The hon. Gentleman is perfectly right. Those services help the agricultural community, and that is why we do not believe that it would be sensible for the cost of those services to be placed on the cost of food. Indeed, the Labour party supported us in our decision not to put VAT on the cost of food.

Mr. Marland: Is my right hon. Friend aware that Gloucestershire county council, under alliance control, has passed a resolution to rate agricultural land and buildings and that the decision was welcomed with relish by David Halford, the alliance leader of that council?

Mr. Gummer: My hon. Friend confuses me still further. Last year the alliance was in favour of rating or at least taxing agricultural land, but now it is against it. In Gloucestershire, however, the alliance is in favour of it, which makes it very difficult for voters to decide what are the true policies of the alliance.

Mr. John: Will the right hon. Gentleman give an assessment of the effect of the poll tax on farmers and their families?

Mr. Gummer: The community charge that is proposed for Scotland, and which we intend to introduce throughout Britain, will place a reasonable burden on people throughout the community, at exactly the same level, but it will not be levied on agricultural land. Therefore, it is uniquely different from the policy of the Opposition. I remind the hon. Gentleman that he told the NFU that he hoped to persuade his party to change its policy on rating before the election, and I can understand why.

Farm Incomes

Mr. Speller: asked the Minister of Agriculture, Fisheries and Food what steps he is taking to improve the real level of farm incomes.

The Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food (Mr. Donald Thompson): After a drop last year farm incomes this year have shown an increase of 21 per cent. The best way to improve on that improvement is to bring supply and demand into better balance.

Mr. Speller: I thank my hon. Friend for the first part of the answer. May I remind him that in the last year for which figures are available the incomes of lowland beef farmers in the south-west went down by 31 per cent. and that those of the upland beef farmers went down by more than 40 per cent.? Will he take corrective measures in regard to the suckler cow premium and a major revaluation of the green pound?

Mr. Thompson: For suckler cows the maximum possible rate of payment in 1987 will be around £33·40. The current rate is £24·74. The level of the green pound is kept under continuous review, and the recent hard-won devaluation shows that we are prepared to act when necessary.

Mr. Kirkwood: Will the Minister return to the question of the present value of the green pound? What steps are


the Government taking to ensure that the beef sector in this country is protected against the present rate of the green pound?

Mr. Thompson: As I mentioned, the maximum rate for the suckler cow premium is going up.
A large number of cows will be coming on to the market to be culled as the milk quota goes down by 9·5 per cent. The Government and the Commission are taking careful note of those considerations while discussing the next round of price fixing.

Sir Kenneth Lewis: Does my hon. Friend agree that the best improvement in regard to farm incomes is that they should be realistic? The Government are seeking to achieve stability in the market and they should be thanked for that instead of being knocked about by the NFU.

Mr. Thompson: The Scottish NFU is on the right track and I am sure that the rest of the NFU will quickly follow. I agree with my hon. Friend that the best way to improve farm incomes is to stop spending money on intervention and start spending it on farmers and farming.

Several Hon. Members: rose—

Mr. Speaker: Order. Before I call the hon. Member for Caerphilly (Mr. Davies) to ask his question, I must point out that there is a misprint on the Order Paper. The word "international" should read "interested". I believe that the Minister knows that.

Conservation

Mr. Ron Davies: asked the Minister of Agriculture, Fisheries and Food if he will make it the policy of his Department to hold regular meetings with international bodies on conservation issues affecting agriculture.

Mr. Donald Thompson: It is already the policy of my Department, in close co-operation with the Department of the Environment, to participate fully with interested or international bodies, according to their timetables, in discussions on conservation issues affecting agriculture.

Mr. Davies: Now that the Minister and his Department have had time to reflect on the fiasco of last week's statement on the future of agricultural land, is he aware of the damage that he is doing to the future of our agriculture by refusing to give proper consideration to questions, of environmental protection and conservation? Will he acknowledge that there can be no secure future for agriculture until his Department gives proper consideration to those questions, and does he accept that the best way to secure that input into his Department's thinking is to arrange to meet on a regular basis public bodies which have conservation as their prime concern?

Mr. Thompson: The best protection of the rural economy and the environment is a properly informed agricultural Department, such as MAFF. Yesterday the hon. Gentleman attended the debate on environmentaly sensitive areas and he knows that MAFF and the Countryside Commission have a venture in the Broads to encourage the conservation of the grazing marshes. The farm and countryside initiative is useful for the environment, the code of good agricultural practice avoids water pollution, and there are guidelines on housed livestock, all of which help conservation. I could continue at length if you, Mr. Speaker, would allow me.

Mr. Conway: Does my hon. Friend agree that the best way to ensure conservation is to use the voluntary method practised by those with the greatest expertise at conserving the countryside, namely, the farming community?

Mr. Thompson: Any basis for a beautiful countryside, which is what most people regard as environmentally acceptable, must be the farming community. They must form the basis of any such policy.

Mr. Maclennan: Is the Minister aware that last week, at the annual general meeting of the NFU, the Minister of State, the right hon. Member for Suffolk, Coastal (Mr. Gummer), said that he believed that decisions on the countryside should be taken by those who live there, not by weekenders? How does the Minister square that with the decision announced by the Secretary of State for the Environment that MAFF will no longer be consulted on planning matters in the countryside?

Mr. Thompson: The first and second parts of the hon. Gentleman's question do not screw together properly, which is perhaps an alliance failing. Weekenders go to the country to live in their caravans at weekends. The beauty of the countryside should be determined by people who spend all week working in and about the country and rural areas.

Food Surveillance

Mr. Stevens: asked the Minister of Agriculture, Fisheries and Food if he has yet reached any conclusions on the 17th report of the steering group on food surveillance entitled "Survey of Mercury in Food".

Mr. Donald Thompson: The report recommends that monitoring of foods for mercury and intakes of mercury by special groups of consumers be undertaken. Arrangements for this monitoring are currently being made by my Department.

Mr. Stevens: I thank my hon. Friend for that reply, particularly his commitment fully to monitor mercury intakes. Will he confirm that the mercury level in food and drink in the United Kingdom is less than one tenth of the safety level recommended by the World Health Organisation?

Mr. Thompson: My hon. Friend is correct. Over the past 15 years we have had substantial reductions in mercury discharges, and food and drink is safe from any mercury contamination.

Dr. Godman: With regard to the report, will the Minister confirm that shellfish and white fish stocks in the north Atlantic are utterly and completely free from mercury contamination?

Mr. Thompson: I should not like to confirm that shellfish and white fish stocks are utterly free from mercury contamination. I said that food sold in Britain is fit to eat and safe. Most of the mercury contamination that flows into the North sea flows in from continental rivers, over which we have little control.

Food Aid

Mr. Dixon: asked the Minister of Agriculture, Fisheries and Food what are the latest amounts of (a) butter and (b) meat distributed in the United Kingdom under the European Economic Community food aid scheme.

Mr. Gummer: Releases authorised so far from intervention stores in the United Kingdom represent 15 million packs of butter and 3·15 million portions of beef.

Mr. Dixon: Has the Minister had any report of local difficulties in the uptake of the scheme? There have been reports of all sorts of problems in the distribution of this food. That is not the fault of the charities involved, because they were given little notice, no information and no resources to carry out the organisation of the scheme. If those reports are true, will the Minister ensure that those for whom the food is meant receive it?

Mr. Gummer: Charities have welcomed what we have done. The release of stocks was indeed done rapidly, but the cold weather occurred and we wanted to do it as quickly as possible. If we had done it at length, I am sure that the Opposition would have complained had the butter gone out in June. We tried to send the food off as quickly as possible. There are places in which distribution has been better than in others because some charities have been better organised in some places than others. We are trying to help in every way possible. It is a remarkable fact that Britain got off the ground first. We have distributed more than any other country in Europe and have done it more efficiently. Our charities are better run.

Mr. Burt: I thank my right hon. Friend for his comments about the charities involved. Will he spare a moment to thank the charities for the excellent work that they have done in distributing the food? If it becomes clear that we have not been able to distribute as much as we would like, will my right hon. Friend, in company with his colleagues in Europe, consider extending the deadline so that more of the stock can be distributed to those who need it?

Mr. Gummer: I cannot give agreement to that at this stage. We are monitoring the position extremely carefully because we want to see how efficient it is. I am impressed by the charities. I commend particularly the Salvation Army and the Womens Royal Voluntary Service for their work. I am also pleased to see the support that the butchery trade has given to the charities to help with the cutting up of the meat.

Mr. Hugh Brown: I recognise that the Department is monitoring the scheme, but what steps have the right hon. Gentleman or the Secretary of State for Scotland taken to put Members of Parliament in the picture about what quantity of food can be expected in any geographical area, if not in any constituency? Has the right hon. Gentleman given guidelines to the voluntary bodies on that?

Mr. Gummer: I distributed a note to all Members of Parliament saying which charities were working in this matter and how the system would work. I advised all Members of Parliament to get in touch with me if there were any particular problems. If the note has not reached them, it is because it has not come from their Whips' office. The note was provided, and if there were any particular problems, I asked for hon. Members to get in touch with my office. My office has dealt with any Member of Parliament who wanted help, and I am happy to speak on any detail about which an hon. Member is concerned. The charities have been given general guidelines. I have left it to them to do what they do best, which is to go to the people whom they know in the way that they find most effective.

Mr. Colvin: Will my right hon. Friend add Age Concern to the list of charities to be congratulated, because, along with the WRVS, it has done a lot of work in my area? Will he also have words at an early date with his friends in the Department of Health and Social Security? I feel that greater liaison between his Ministry and the DHSS is important if we are to get over to people in need the message as to who qualifies for this food. Currently, there is a slight breakdown in communications.

Mr. Gummer: I commended those two charities because the others which have helped us so much centrally, as well as other smaller charities, have relied on them to a great extent. I add the Red Cross to the list of charities which have done a lot of work for other charities. I am not underestimating the work done by the other charities which have been co-operating.
I warn my hon. Friend about his comment with regard to the DHSS. We tried to operate a scheme in Europe which enabled the food to go through the charities that had a regular, continuing relationship with those most in need so that we did not have a bureaucratic system which involved saying, "You get it only if you fit into a particular situation. There is that token. You must wait in line." We want a freer system which operates under the guidelines that we have given. That is why we have kept this operation in the voluntary sector. That is the right way to to it.

Mr. Corbett: Is the Minister aware that until about a week or 10 days ago not a single slice of beef and very little butter had been distributed in Birmingham and the rest of the west midlands? Will the right hon. Gentleman take steps to ensure that if extra assistance to the charities involved in the scheme in Birmingham and the west midlands is needed his Ministry will provide it?

Mr. Gummer: The hon. Gentleman may be a little behind the times. I was in the west midlands yesterclay, where I helped to distribute the butter which was part of the 5 tonnes of butter going to Wolverhampton alone. The hon. Gentleman has probably got it wrong. If there is a difficulty, I shall certainly look into it for him.

Mr. Cormack: Is my right hon. Friend aware that, commendable as the scheme is, the amount of food involved is very small? I hope that my right hon. Friend the Minister for Agriculture, Fisheries and Food is not today negotiating away large surplus amounts to the Russians at knock-down prices.

Mr. Gummer: I think that 15 million packs of butter is quite a lot of butter—we should not be curmudgeonly about the amount of food that is going out in this way — but the scheme will not solve the problems that we have had with stocks. We have sought to stop the stocks from growing. A decision to that effect was the successful outcome of our negotiations in December. We still have to get rid of a very large quantity of butter, some of which is not comparatively new butter—such as the butter to which we are referring—but has been there for some time. I certainly do not rule out the opportunities to sell that butter in other markets.

Mr. John: As, by common consent, the right hon. Gentleman and all of us are grateful to the charities for their work, will he set their minds at rest by clarifying at whose cost the meat and butter are to be distributed? The


Government are paying for the cost of inward distribution, but will the charities have to bear the fuel costs of their distribution of the butchered or packaged foods?

Mr. Gummer: We discussed in great detail with the charities what the Commission allows in terms of costs. We have gone back to the Commission to suggest that some improvements can be made. I hope that we shall be able to make them. We have a fixed amount for the distribution costs of butter and beef. We are, of course, paying for the cost of buying the milk and cheese at the most suitable market for the charities. We are trying to meet the costs as much as possible. We are discussing with the charities whether they can give any other help. Considerable public funds have been made available for this project, and I think that that is a very satisfactory answer.

Mr. Charles Morrison: Does my hon. Friend agree that, on the whole, the distribution of surplus food is working well? However, some of the charities and some of the people working for them are a little nervous about the fact that they might be acting in breach of the regulations. Does my right hon. Friend agree that in marginal situations it is better that the charities should err on the side of generosity rather than on the side of bureaucracy?

Mr. Gummer: The Commission made it very clear in launching what was, by its nature, a rapid scheme that it would look with that attitude in mind at the way in which the scheme was carried out. That is a sensible approach. Of course, I am willing and happy to discuss the scheme with any charity which is concerned about how to interpret the guidelines and the Commission's proposals.

Radiation Contamination

Mr. Willie W. Hamilton: asked the Minister of Agriculture, Fisheries and Food if he will make a statement on the continued existence of sheep and lambs contaminated by radiation emanating from the Chernobyl nuclear accident.

Mr. Donald Thompson: Radiocaesium levels in the majority of sheep within the restricted areas in Cumbria, Wales and Scotland are stable or declining slowly. Extensive live monitoring of sheep which have left the areas has demonstrated that levels fall rapidly when the sheep graze uncontaminated pasture. Some 42,000 of these sheep have been tested to date and fewer than 0·1 per cent. have failed.

Mr. Hamilton: How many farms and sheep are still in the controlled areas? How soon does the hon. Gentleman expect that the controls will be lifted? Does he recognise that some of those farmers are angry about the delay in receiving compensation payments and their inadequacy? Does the hon. Gentleman understand that this problem shows the great dangers that exist as a result of radiation and nuclear power?

Mr. Thompson: To answer the four questions as they were asked, there are 466 holdings, 315 in Wales, 150 in Cumbria and only one in Scotland. We have been and are monitoring blue-marked sheep in anticipation that, in the near future, we can make relaxations in the restrictions. I can well understand that farmers are anxious about the future and about the compensation. The compensation

has been made in three tranches. We are still talking with farmers. At present we have compensated to the tune of £4 million. We are anxious to remove farmers' anxieties.

Mr. Campbell-Savours: The Minister referred to contaminated pastures. Does that mean that he accepts that there is contaminated silage? What monitoring is going on of the contaminated silage to ensure that it does not, at any stage, enter into the food chain?

Mr. Thompson: On the basis of testing and experimental work we can advise farmers that silage and hay can be safely fed to animals without special precautions. Foodstuffs derived from animals fed on silage and hay are being tested to ensure that the position remains satisfactory and that there is no danger whatsover to public health.

Beef Herd

Sir John Farr: asked the Minister of Agriculture, Fisheries and Food what is the size of the beef herd at the latest available date.

Mr. Gummer: 1,300,000 head in June 1986.

Sir John Farr: I am grateful for my right hon. Friend's reply. Is he aware of the economic strain that beef finishers are under today? Will he assure the House that he and his Department recognise the value of the work that the traditional beef finisher is putting in in producing beef cattle in this country off grass in the traditional way, and that that is a skill that is still needed in Britain today?

Mr. Gummer: I very much agree with my hon. Friend's comments. That is why we fought so hard to ensure that we had a non-discriminatory policy in the Community, that we kept the beef variable premium scheme, that we increased the suckler cow premium and that we ensured that, with the reduction in intervention, the British farmer suffered less than any other farmer in the whole of Europe. That is a proper response to my hon. Friend's point.

Mr. Haynes: Is the Minister aware that I have some farming in my constituency? Is he also aware that those farms in my constituency that produce beef produce beautiful, delicious beef? Is he aware that the message that he brings back from Europe is not good enough? We want more and more beef produced in this country—English beef for English people. We do not want that rubbish from across Europe.

Mr. Gummer: I am sure that the hon. Gentleman would like to know that we are 96 per cent. self-sufficient. I agree that the beef industry has major difficulties. I hope that he will tell his beef farmers why the Labour party intends to rate agricultural land, and see what they think about that.

Mr. Colin Shepherd: Does my right hon. Friend agree that both he and his right hon. Friend the Minister of Agriculture, Fisheries and Food should be congratulated on what they have achieved for the beef industry? Nevertheless, will he bear in mind that the very substantial stress in the industry caused by the green pound differential and adverse monetary compensatory amounts does not lead to confidence in either the short or the long term and that that problem must be addressed? Will he bring all the pressure that he can to bear on the Treasury and on the Commission to get that problem resolved?

Mr. Gummer: My hon. Friend knows that we shall be discussing the green pound in the price negotiations that


are about to begin. I am glad that he supports what the Government have done in this sector. Obviously we are determined to support the sort of policies which mean, for example, the retention of the BVPS for two years so that there is some degree of continuity and confidence as a result.

Mr. Home Robertson: Is the Minister aware that the failure to operate the hill livestock compensatory allowance was one of the many factors that led the National Farmers Union to pass a vote of no confidence in the Minister of Agriculture, Fisheries and Food last week? Has he had time to consider the terms of that resolution, calling on the right hon. Gentleman to get his act together or to get out? Which will it be?

Mr. Gummer: The hon. Gentleman would do well to remember that the policies put forward by his party are so disastrous that they are not taken at all seriously by the farming community. Indeed, they are not taken seriously by his own party, because he and his hon. Friend the Member for Pontypridd (Mr. John) had to pay for their own policy document because the party was not even prepared to fund it.

Horticulture

Mrs. Roe: asked the Minister of Agriculture, Fisheries and Food what is the value of the horticultural output from commercial holdings in 1985 and 1986.

Mr. Donald Thompson: The value of horticultural output from commercial holdings in the United Kingdom for 1985 was estimated at £1,171 million and is forecast at £1,234 million for 1986.

Mrs. Roe: I thank my hon. Friend for his reply. Does he agree that the horticulture industry makes a major contribution to the national economy and will he ensure that the extra help for marketing announced in his ALURE package will be available to horticulture?

Mr. Thompson: I entirely agree with my hon. Friend. Marketing is indeed a most important aspect of horticultural production, and all other production. We shall give any help we can, through our various agencies, to help marketing in horticulture.

Oral Answers to Questions — PRIME MINISTER

Engagements

Mr. Gareth Wardell: asked the Prime Minister if she will list her official engagements for Thursday 19 February.

The Prime Minister (Mrs. Margaret Thatcher): This morning I presided at a meeting of the Cabinet and had meetings with ministerial colleagues and others. In addition to my duties in this House I shall be visiting Yorkshire later today.

Mr. Wardell: Are there any circumstances in which the right hon. Lady's Government would prevent a British company falling into foreign hands?

The Prime Minister: If we were to say that we would automatically prevent a British company from falling into foreign hands, we would prevent a great deal of inward investment that is welcome in this country.

Mr. Speller: asked the Prime Minister if she will list her official engagements for Thursday 19 February.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Speller: Will my right hon. Friend consider the anomaly over television licence fees for the elderly? Is she aware that if one is in warden-controlled sheltered accommodation which is council-owned one pays 5p per set per year, but if one is in private residential care or any other form of housing one pays the full fee regardless of age or income? Would it riot be fairer if all people of pensionable age had the opportunity to pay the same fee based upon means to pay, not just upon age?

The Prime Minister: I note my hon. Friend's suggestion. However, as he will be aware, the House debated that matter recently. I do not believe that it is fair, as a general rule, to exempt particular groups from the licence fee. My hon. Friend's proposal would cost some £80 million, which would add considerably to the cost of the licence fee for others, including many pensioners, who would still be required to pay it.

Mr. Kinnock: Is the Prime Minister aware that the Secretary of State for Defence said in Washington yesterday that if any part of the strategic initiative programme
we are involved in went, in our view, outside the treaty"—
that is the ABM treaty—
we wouldn't want to be involved."?
Is that now also the position of the Prime Minister, or is she going to be yet again the presidential doormat?

The Prime Minister: I think that the right hon. Gentleman would do well first to consult my right hon. Friend the Secretary of State for Defence to see exactly what he did say. He will find that it did not resemble exactly what he said. The position is as I have outlined it previously. First, we have no locus in interpreting the ABM treaty. Secondly, deployment is clearly a matter for negotiation, as we have agreed. Thirdly, we have received satisfactory assurances from the United States that there will be consultation about any significant change of policy in relation to SDI research. Fourthly, the Government fully support the SDI research programme, which is permitted by the ABM treaty. It is vital to our defence that the West should always be at the forefront of new technology.

Mr. Kinnock: I think that the Prime Minister should consult her right hon. Friend the Secretary of State for Defence, since clarity is all-important in this issue, both for the American President and, more importantly, for the British people. Is the Prime Minister aware that, when asked yesterday what he would do if the United States said that it wanted to test SDI technology in space, the Secretary of State for Defence said:
The outcome might be that we agreed with what was proposed or might not agree.
Since, on Tuesday, the Prime Minister started off by supporting the narrow interpretation of the ABM treaty but by the end of Question Time she was supporting the broad interpretation, exactly where does she stand?

The Prime Minister: The right hon. Gentleman has suggested that I should consult my right hon. Friend the Secretary of State. That is precisely what I did do this morning and that is why I gave the reply that I did.

Mr. Sumberg: In relation to the north-south divide, has my right hon. Friend noted the remarks of Mr. Kenneth Livingstone, that far too many northern Labour MPs know nothing of life in London and all they do know about are the brothels and wine bars of Westminster.?

Mr. Speaker: Order. Is all this part of the Prime Minister's responsibilities?

Mr. Sumberg: Will my right hon. Friend join me in condemning this disgraceful slur on the north of England and on the hard-working northern Members of Parliament on both sides of the House?

The Prime Minister: I am not going to get involved in that one.

Mr. Pike: asked the Prime Minister if she will list her official engagements for Thursday 19 February.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. Pike: Is the Prime Minister not worried about the reported links between cancer and nuclear installations?

The Prime Minister: The report to which the hon. Gentleman is referring has been, or will be, placed in the Library of the House when it is available. In fact, its production has been accelerated so that it can be available before the debate on Sizewell. I understand that many people have interpreted it totally differently. Its purpose is to find out the facts and it is for others to make the assessment.

Mr. Colvin: asked the Prime Minister if she will list her official engagements for Thursday 19 February.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Colvin: Does my right hon. Friend agree that the Agriculture Council, under the United Kingdom presidency, took a major and historic step last December when it tackled the mounting problem of food surpluses? Will she acknowledge that the total change of direction that the whole of the agriculture industry is now having to face will be both painful and difficult? What will the Government be able to do to assist the industry in this process of adaptation, bearing in mind the calls for a five-year transition period and the devaluation of the green pound?

The Prime Minister: I agree with my hon. Friend that the Agriculture Council last December made a great effort officially and in a very practical way to tackle the problem of food surpluses in the Community. I know full well that the adaptation will be painful for farmers, but, as my hon. Friend is aware, we already give considerable national help to farmers in addition to that which they get from the CAP, for example, in capital grants and in support for special areas. Support for special areas totals £141 million.
I think my hon. Friend is aware that my right hon. Friend the Minister of Agriculture, Fisheries and Food plans to publish next month a document describing in greater detail how the Government's policies towards farming are being adjusted to reflect changes in agriculture and the potential in the rural economy as a whole. With regard to the green pound, that will be a matter to be considered at the annual price fixing. As he knows, there is at present the review of the agro-monetary system.

Mr. Wrigglesworth: Does the Prime Minister agree that lack of adequate housing is a major impediment to labour mobility and causes great misery in many parts of the country? Will she spend some time today looking at the housebuilding record of her Administration since 1979, which will show that, after eight years, this Government have managed to get only 200,000 new houses started in the private and public sectors last year, when Mr. Harold Macmillan, in his period as Minister of Housing, after four years, was able to build 300,000 houses?

The Prime Minister: It is not only public sector housing, as the hon. Gentleman is aware. The dwelling stock has increased by 1·4 million. That is an enormous increase during the lifetime of this Government. Capital spending on the renovation of English council housing has increased from about £480 million in 1978–79 to an estimated £1,300 million in 1986–87. So there are more houses and better renovated houses.

Mr. Cash: asked the Prime Minister if she will list her official engagements for Thursday 19 February.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Cash: Does my right hon. Friend share my deep concern that certain Left-wing teachers in London have banned the video which would have enabled children to be properly informed about sex attacks, simply because the police recommended that it should be shown? Does that not demonstrate that those teachers could not care less about child abuse?

The Prime Minister: I think it absolutely disgraceful that a few Left-wing teachers in ILEA should attempt to jeopardise children's safety in this way. I believe that parents will be appalled, and rightly so, that their children are put at risk because of this anti-police demonstration by Left-wing teachers.

Mr. Campbell-Savours: asked the Prime Minister if she will list her official engagements for Thursday 19 February.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. Campbell-Savours: Did the Prime Minister not make a bit of an ass of her Chief Whip last night, when she allowed Downing street to bypass him and use the hon. Member for Watford (Mr. Garel-Jones) to arrange the tabling of a motion attacking the Labour leader?

The Prime Minister: I have myself been the victim of attacks from the hon. Gentleman and many others, and I have never squealed or complained about it. But may I make it absolutely clear that I for one, regardless of the hon. Gentleman, welcome the agreement reached by my right hon. Friend the Chief Whip and the Chief Whip of the Labour party that we concentrate on policy matters. I have always tried to do that and shall continue so to do.

Hon. Members: Tell that to Edwina Currie.

Mr. Speaker: Order. It sounds like a rabble.

Mr. Forman: In the course of her busy day, can my right hon. Friend find time to consider the disappointing level of civilian research and development in this country compared with Germany and Japan? As a former trained scientist herself, can she look closely into the matter to see


that everything possible is done to improve our position, since, in the long term, if we do not pay attention to this matter there is a danger of its damaging us in international competitiveness?

The Prime Minister: I know that there is a very important debate in another place today. May I point out that overall net Government expenditure on research and development is at a record level? United Kingdom Government-funded civilian research and development as a proportion of national output exceeds the level in Japan and the United States. My hon. Friend mentioned Germany. It is also true that for all research and development our expenditure as a proportion of national output exceeds that of Germany, so we have a much better record than many people realise.

Mr. Michie: asked the Prime Minister if she will list her official engagements for Thursday 19 February.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. Michie: May I bring the Prime Minister's attention back to the question asked by my hon. Friend the Member for Burnley (Mr. Pike), which was not whether the report

will be placed in the Library or whether there is a different interpretation, but whether she is worried about the report, which links cancer with nuclear installations?

The Prime Minister: Unlike some hon. Gentlemen, I prefer to read a report before I pronounce upon it.

Sir John Farr: May I ask my right hon. Friend whether she will have a chance today to look at the reports of the difficulties in raising finance encountered by those engaged in promoting the Channel tunnel? When she has had a look at those reports, will she assure the House that in no way will the Government put up funds should such people be unable to raise the finance?

The Prime Minister: As my hon. Friend knows, we are glad to reaffirm the Government's general support for the Channel tunnel project. As I have made clear in the past, no Government money will be provided. I think that both the French Government and our Government remain enthusiastic about the project. It is one of the most challenging of our time. It will provide many man years of work and many thousands of jobs. I hope that the finance will be forthcoming for this project and that this generation will be able to rise to this challenging adventure.

Rover Group

The Secretary of State for Trade and Industry and President of the Board of Trade (Mr. Paul Channon): With permission, Mr. Speaker, I should like to make a statement concerning the Rover Group.
I am pleased to be able to announce today the Government's approval of the Rover Group's 1987 corporate plan. The plan is reviewed annually to cover a rolling period of five years ahead; the strategy in this plan, which relates to the period 1987–91, will evolve in that period to meet market developments. In accordance with usual practice, I am today placing in the Library of the House a summary of the plan excluding commercially sensitive details.
The plan sets out a positive course for the continuation of Austin Rover as a major producer and leading exporter of cars made in Britain. The programme of model collaboration with Honda will be taken forward with a new medium sized car, the AR8, for which a manufacturing agreement should shortly be concluded. The future relationship between the companies will of course continue to develop in the light of experience, but it is the intention of both companies that the relationship should be a long-term one and should endure beyond the life of existing design and production contracts. The Government very much welcome this joint intention to continue to strengthen links in the future.
The corporate plan provides for the new K series engine to be taken forward to full production and used in Austin Rover's smaller engined cars. This engine will equip the company for the next decade with a new high economy engine designed to meet new emissions controls and will also make a major contribution to Austin Rover's strong presence in the small car sector, which, with the planned further development of the model range, is a vital element in the company's marketing plan.
Turning to Land Rover, the plan takes account of the launch of Range Rover in the United States this year, which will be a major step in diversifying Land Rover's market base.
On the commercial vehicle businesses, my hon. Friend the Minister of State, Department of Trade and Industry told the House on 13 January that the sale of Leyland Bus to a management buy-out had been completed. I told the House on 2 December that Rover Group was also holding commercial discussions with DAF in relation to Leyland Trucks and Freight Rover, and separately with Paccar in relation to the trucks company. Following these negotiations, Rover Group and DAF have proposed that Leyland Trucks, DAF Trucks and Freight Rover, shall combine to form a new Anglo-Dutch joint venture. As recommended by the Rover Group board, the Government have accepted these proposals, which create a company with the capability to achieve a major presence in the European commercial vehicle market. The agreement will also include the associated parts operations and certain overseas operations. These proposals build upon important existing distribution links between the companies. RG will take a 40 per cent. shareholding in the new grouping based on the value of the assets it brings to the merged operations and will have board representation.

DAF will hold the remaining 60 per cent. Market conditions permitting, it is the firm intention of RG and DAF to float the company within two to three years.
Within the joint company Freight Rover, which is planning to invest in a major model replacement programme, will continue to manufacture vans at its Common lane site in Birmingham. Leyland will continue as the focal point for truck manufacture in the United Kingdom, and I expect the Albion plant to have a continuing role in the joint operation as a producer of axles.
These decisions take place in the context of severe overcapacity in Europe. As I made plain in my statement in December, all the commercial options open to Rover Group in relation to the trucks business would involve significant rationalisation and restructuring with inevitable job losses. I regret these. The Scammell plant at Watford will be closed and its production transferred to Leyland. The engine and foundry plant at Leyland will not be part of the new company and activities will be gradually run down for closure by the end of 1988. Some 1,700 jobs will be lost through those closures and a further 560 through slimming of the Leyland and Albion operations. Employment levels at Freight Rover are expected to be maintained.
I believe that this agreement offers the best prospect of building a secure long-term future for Leyland Trucks and Freight Rover and the House will be pleased to know that the plan developed by the two companies envisages significant expansion of truck production at Leyland including for export and an important expansion of the export of Freight Rover vans.
As part of this restructuring, the Government intend to write off the accumulated debts from Leyland Bus and Leyland Trucks left in Rover Group, and the restructuring costs resulting from their sale. The Government have notified the European Community Commission of this intention and the normal procedures are in train. The Government intend to provide up to £750 million for this purpose. I am laying an order today under the Industry Act 1980, and Rover Group will hold a general meeting in March.
The proposals which I have announced today will strengthen both Rover Group and the vehicle industry in this country. Success now depends on achievements in the market place. Mr. Day has focused sharply on the need for commercial success in recent months, and I am encouraged by news that Austin Rover's market share so far this year is sharply up on that of recent months. With new marketing initiatives, increasing sales, recent successes in the fleet market, such as the orders by major car rental companies, and the launch of the Sterling and Range Rover in the United States this year, Rover has the opportunities and skills to succeed.
In short, these proposals will give the go-ahead to Rover Group's corporate plan; safeguard the manufacture of trucks within the United Kingdom in the context of a new European joint venture; and free Rover Group from the accummulated debt of the truck and bus businesses. I am certain that the House will support that.

Mr. John Smith: Is the Secretary of State aware that everyone in the House will wish success to the Rover Group in competing in overseas markets and increasing sales? However, is he further aware of the dismay that will be felt on both sides of the House at the


fact that 2,400 jobs are to go, that the engine plant at Chorley is to disappear completely, like the foundry at Farrington, and that the Scammell plant at Watford is to he closed?
With regard to the Rover corporate plan, the Opposition welcome the commitment to the AR8 and the K series engine for which we have long pressed. What has happened to the AR6 project? Is it included in the corporate plan?
Can the Secretary of State assure us that the stronger links envisaged with Honda will not lead to a merger on the lines proposed for Leyland Vehicles and DAF? What is the Government's intention about the future ownership and development of Land Rover about which the statement is significantly silent?
I want to consider the major elements in the Secretary of State's statement about Leyland Trucks. Is it not crystal clear that, on the basis of a 40 per cent. to 60 per cent. share of the equity in a joint company, DAF will have clear control of the new merged operation? Is the Secretary of State aware that the 1985 DAF annual report states:
One of DAF Trucks' policy aims is to maintain the company's independence"?
In an interview in the Financial Times of 22 December, Mr. van der Padt made it clear that his company would retain its own identity and engineering capabilities. Is it not clear that he has achieved his objective but that the British Government have not achieved theirs?
Why has Freight Rover—a very successful company with increasing sales, an increasing work force and a strong market performance—been included in this sale? Is it being included as a sweetener for DAF? Why must we sell a profitable company or surrender control of it? Is it not ironic that we appear to be surrendering control of Leyland Vehicles because it makes a loss and surrendering control of Freight Rover because it makes a profit? What is the value of the Rover Group's 40 per cent. share in the new company? [Interruption.] The Chancellor of the Exchequer says that we will discover that when it comes to the flotation. It is important to discover it now before we decide whether this is a good deal. Clearly the Chancellor is happy to remain in ignorance, but I hope that the House will want to know the value of the assets that are committed to the joint venture. If and when flotation occurs, what will happen to the proceeds of the 40 per cent. share? Will they go to the taxpayer, or will they be used to finance future development in Austin Rover? What sort of financial support did Austin Rover ask for from the Government in the corporate plan and what has it received?
What we are witnessing today is the effective surrendering of the control of the British truck and van industry, and no Government should be proud of that.

Mr. Channon: By the tone of his questions the right hon. and learned Gentleman shows that he is not living in the real world. To hear the right hon. and learned Gentleman one would not get the impression that this truck business has been losing £1·5 million a week. It has lost £300 million over the past five years. We have achieved an agreement under which it will be part of a European scale operation with a turnover of £1 billion, and it will be the fourth largest truck company in Europe. An increased number of trucks will be sold and the volume will be considerably increased. That is good news for the future of the truck industry in Britain.
The right hon. and learned Gentleman asked what the Rover Group asked for. It asked for what is in the corporate plan and it has been given everything that it asked for. The corporate plan will be published in the normal way and placed in the Library. It contains everything that the Rover Group asked for. The right hon. and learned Gentleman is disappointed because he is trying to pretend that the Rover Group asked for something that the Government did not give it. The Government did what the Rover Group wanted because we have confidence in the commercial future of that company. I hope that the House understands that.
The advantages of this sale for Freight Rover are enormous. There will be firm plans for the future of the company, with the design and development of a new model range for manufacture at the Common lane plant. There will be opportunity to develop a substantial export business to Europe. There is a good chance that by the 1990s exports could be as much as 20 or 25 per cent. of the company's production. That is good news for Freight Rover and its continuation. There has never been any suggestion of Honda merging with the Austin Rover Group.
The right hon. and learned Gentleman asked me about the AR6. There is already an investment of about £200 million in the K series engine and the related gear box. That is evidence of the Rover Group's continuing commitment to the small car sector. The timing of further investment is a matter for the company to decide.

Mr. John Mark Taylor: Does my right hon. Friend accept that those of us who have always regarded Leyland as an unnatural aggregation are very pleased with his statement and with the continuing process of finding separate destinies for the subsidiary parts of the Rover Group? Would he care to put a time scale on the privatising and floating of Land Rover?

Mr. Channon: My hon. Friend will recall asking me that question a little while ago. We should like Land Rover to be returned to the private sector within a reasonable period. That cannot he considered until we are sure that it is in an excellent position. I am confident that Land Rover will soon have the best possible future as a manufacturer of a renowned British product. My hon. Friend will find that it is an ex tremely satisfactory position and proceeding well.

Mr. Ian Wrigglesworth: Is the Secretary of State aware that the announcement about the long-term relationship with Honda is welcome and that my hon. Friends and I wish it well? Is he further aware that the announcement about the trucks division is a sad epitaph on the eight years during which the Government have been responsible for British Leyland? What bids and proposals were considered for that division? What consideration was given to the bids by Lancashire Enterprises Limited and Paccar? Was consideration given not to a 60: 40 split, but to either having Leyland control over the Anglo-Dutch enterprise or to having at least a 50: 50 split?

Mr. Channon: I am grateful for what the hon. Gentleman said about Honda, and I am glad that he supports the collaboration.
On the merger, the only bids were from DAF and Paccar and I advised the House of that in early December.
The Government endorsed the view of the Rover Group board that DAF's was the best of the bids, which is why we proceeded with it. The deal involves a merger of the two companies, not a sale of assets. It is a reasonable valuation and an exceedingly good deal for the truck industry. Therefore, I disagree strongly with the hon. Gentleman's comments about the past seven years. The future expansion of the industry is on the road and looks good.

Mr. Robert Atkins: Is my right hon. Friend aware that my constituents do not take kindly to the activities of the hon. Member for Gordon (Mr. Bruce), who does not have even the courtesy to be here to listen to my right hon. Friend's statement? The hon. Gentleman made inaccurate remarks about the plants, job losses and locations in my constituency and others.
Does my right hon. Friend agree that the deal offers the best possible future both for my constituents and for those who work in Leyland? The alternative of remaining in the Rover Group is unacceptable on the ground that it would probably mean more job losses and eventually the closure of the plant. Can my right hon. Friend confirm that there will now be continuity at the Leyland assembly plant and the design and development testing track? Can he also confirm that there will be exceptionally generous —[Interruption.] If Opposition Members cared so much about people's jobs, they would be quiet. Can my right hon. Friend confirm that exceptionally generous redundancy offers will be introduced over a period? Will he stress to the Rover board that when the flotation occurs shares should be made available to the company's employees?

Mr. Channon: Yes, I shall certainly do what my hon. Friend has suggested about the flotation.
I am astonished that the hon. Member for Gordon (Mr. Bruce) is not here this afternoon, after his announcement yesterday and having placed an early-day motion on the Order Paper. He gave the misleading impression that 20,000 jobs would be lost. That was a disgraceful remark. I am entitled to say that in his absence because he should have been here. He has caused a great deal of damaging uncertainty to those involved. he should be thoroughly ashamed.
My hon. Friend is entirely right about the alternative solutions that are available to the company. I am convinced that this is the best deal and that it offers the best future for Leyland, the people whom my hon. Friend represents and those employed at Leyland. Difficult decisions have been taken. There will be continuity for the Leyland assembly plant. Redundancies are a matter for the Rover Group and its employees. I am happy to confirm that it is making what I hope people will think to be generous proposals, and I hope that they will be welcomed.

Mr. George Park: The Minister said that success depends on the market place. That being so, I wonder whether, in agreeing to merge Leyland Vehicles with DAF, he took into account the fact that, in November of last year, Leyland Vehicles took the lead in the market. It registered 805 trucks of more than 3·5 tonnes, compared with 658 for Daimler-Benz and 256 for DAF. Leyland maintained its lead. Given these figures and the need to reduce excess capacity, which I accept, would

it not have made more sense for the merger to have taken place in the reverse direction, rather than to lose control of a strategic part of our industrial base, with consequent redundancies? If the climate of economic growth is as the Government say it is, surely this is not the time for the Government to lose their nerve in supporting key sectors of industry.

Mr. Channon: The hon. Gentleman is quite right in drawing attention to Leyland Trucks' share of the British market. He must understand that the company has lost £300 million over the past five years. As I told the House, it is losing £1·5 million a week. In those circumstances, the solution that he advocates — that is, of taking over DAF, which is a profitable company at present—simply was not on offer. I am convinced that, in all the circumstances, we shall see a much stronger commercial vehicle industry in this country with the rationalisation that will take place and with the emphasis on the export of light trucks. We shall see a joint venture—a merger of the two companies — which will be a powerful organisation in Europe and which will lead to more strength for the company.

Sir Reginald Eyre: Is my right hon. Friend aware that he is to be congratulated on the realism of his proposals and that the underpinning of Austin Rover that will be achieved by the Government's further commitment that he specified is to be welcomed? Will he confirm that, with the joint venture proposals affecting Freight Rover, there will be no loss of jobs at the Common lane factory in Birmingham? Will he confirm also that the prospects of the joint truck venture will be improved by the availability of the sales network in Europe that DAF has built up?

Mr. Channon: I am grateful to my hon. Friend and thank him for his question. I can confirm that there is no reason to assume that there will be any loss of jobs at the Common lane site or in Freight Rover in general. I confirm also that Freight Rover will benefit in the way that he said. This offers an exceedingly good opportunity for Freight Rover in the future.

Mr. Gregor MacKenzie: Does the Secretary of State accept that, as was pointed out by my right hon. and learned Friend the Member for Monklands, East (Mr. Smith), 2,500 fewer people will work in the motor car industry as a result of the arrangements that he has announced? The Secretary of State made passing references to the Albion motor works situated in Glasgow, an area of exceptionally high unemployment. Hon. Members for the Glasgow divisions wish to know precisely what he meant when he said that there was a future for the Albion works. What positive guarantees will he give? The Minister spoke also of the 560 jobs that are to be lost in the Leyland and Albion operations. How many, if any, will be lost in the Glasgow Albion works?

Mr. Channon: The right hon. Gentleman is quite rightly concerned about the Albion plant. I understand that. There will be rationalisation, as I said in my statement, but I believe that Albion has a continuing future as a manufacturer of axles. That would not necessarily have been true under all the options that were available to me. That should be welcomed. It is important that Albion should continue to manufacture axles for the merged


company. I hope that the right hon. Gentleman will welcome that. Of course I cannot tell him to the exact figure what the results will be. Perhaps he will be in touch with the company about that matter, but I am glad to say that, as I have already announced, there will be a continuing future for Albion.

Mr. Richard Page: Although I do not welcome any plant closures, will my right hon. Friend please accept that his news today is the only chance for genuine, long-term jobs in Leyland Trucks? Will he also please confirm that the redundancy terms will be generous and that some of them will be half a year's salary, plus statutory redundancy, and that advice centres will be set up in areas such as Watford to help to re-employ those people who will be losing their jobs, thus filling skill shortages in the Watford area and helping to satisfy the demand in the many new industries that have been established in that region?

Mr. Channon: I confirm what my hon. Friend says. Obviously the company will be discussing this matter with its employees, but the company tells me that the redundancy terms are indeed generous.
On my hon. Friend's point about this being the best solution —and, indeed, on the point made by the right hon. Member for Glasgow, Rutherglen (Mr. MacKenzie) a moment ago — the solution that I have announced today is not what is causing redundancies. There is massive over-capacity in the industry. Whatever solution was announced, there would, unfortunately, be no alternative but rationalisation in this industry. The House ought to understand that, as I told it last December.

Mr. Dave Nellist: Why should this House believe the promise of future security from this Secretary of State who washed his hands of the Climax affair and who handed the Austin Rover group, following British Leyland, into the hands of the fellow who butchered the shipbuilding industry and who is now going to butcher the car industry? Why should we believe his promise when today he announces that 2,500 families, in his terms, are being rationalised? Where we come from we call it the dole.

Mr. Roger King: On a point of order, Mr. Speaker.

Mr. Speaker: I shall take it in a minute. —[Interruption.] Order. Hon. Members should not refer to strangers in the Galleries.

Mr. Channon: I have already explained to the House why rationalisation of the truck industry is needed in this country. That is an unfortunate fact, but the hon. Member must recognise that the truck companies are losing £1·5 million a week.
As for his general question about the car industry, the hon. Gentleman can choose to believe what he likes, but I believe — and I think that most hon. Members will support me—that the proposals for the Rover Group in general that I have announced today offer the best prospects for its continuing commerical success and for the continuing success of Austin Rover as a major producer and leading exporter of cars made in Britain. We have to take action, and we have accepted the Rover Group's corporate plan. I believe that it has a very good chance of success.

Mr. Steve Norris: Will my right hon. Friend accept that Austin Rover's commitment in the corporate plan to maintain volume and to continue the production of the small car range will be very reassuring to those of us who have been worried by misleading press speculation to the contrary in recent days? Will he accept from me that, coming on top of the 500 new jobs that have been announced for the Montego line at Cowley, his statement will be very good news in my constituency and that it will reassure that skilled, dedicated and now growing work force?

Mr. Channon: I am extremely grateful to my hon. Friend. I, too, am very pleased indeed that the Rover Group has recently taken on 500 additional people at Cowley. That helps to give the lie to those who are painting such a picture of gloom. The prospects for this company can be very good indeed, provided that sensible plans are adopted—as I hope they will be today.

Mr. Doug Hoyle: Will the Secretary of State explain what he means by a joint venture when the foreign competitor has the major share? Will he also say what consultations took place with the trade unions and the employees? Will he accept from me that thousands of people have been left in the dark at Leylands? Will he also say who will manufacture the power train and the cabs of the future? Will it be DAF? If it is, that means that Leyland Lorries will become a screwdriver plant. Who will manufacture the military vehicles that at present are made by Scammell? Finally, will he go along and explain the real world to the redundant workers at Chorley, Leyland and Watford?

Mr. Channon: The hon. Gentleman will not take on board the fact that this company has had a series of appalling losses in the past few years and it was essential — whatever Government were in power — for this company to be rationalised. What I have announced today will provide a better future for the production of trucks at Leyland.
The military contract will be transferred to Leyland and will be more secure.
On the question of the joint venture, I described fully in my statement the arrangements that we are making in this merger — the share of the Rover Group in that merger and the eventual intention to float the shareholdings of the DAF shareholders as well.
The Leyland company will put something in employees' pay packets today concerning the merger and, of course, there will be consultations in the normal way through the usual procedures of the company.

Mr. lain Mills: Can my right hon. Friend remind the House just how much money this Administration have spent on supporting the Austin Rover Group? [Interruption.] I am grateful to the Opposition for their help. I have two questions —[Interruption.] The Opposition appear to find this matter amusing. I thought that they took it seriously. What effect will the £750 million write-off have on the future of my constituents who work for Land Rover? Will my right hon. Friend clearly state that the skills of DAF in having a European network of distribution and manufacture will make it a good partner for Leyland Vehicles?

Mr. Channon: I can give my hon. Friend that assurance. My hon. Friend asked me how much money had been


spent on the Rover Group. The Varley-Marshall assurances for the associated debt came to more than £2 billion. Some Opposition Members try to peddle the idea that the Government have not supported Austin Rover, but that is absolutely nonsensical.
As regards the effect of £750 million write-off, one of the most important effects is that it will remove the millstone of the accumulated bus and truck debts from the shoulders of the car production of the company.

Mr Jack Straw: Does not the Secretary of State understand that his decision today is a betrayal not only of the British manufacturing industry but of thousands of people in Lancashire who depend upon Leyland for their employment and prosperity? Does he also accept that, whatever the difficulties of the European truck manufacturers, the difficulties of Leyland will be made far worse by his dogmatic and incompetent approach to the problem? Since he has decided upon the total closure of the foundry and engine plant at Chorley and Leyland, where will the engines for the Leyland trucks come from?

Mr. Channon: The hon. Gentleman makes wild statements but refuses to tell the House what alternative plans are available. He is well aware that what I am trying to do is to provide a better and more secure future for Leyland and those who are dependent on the truck industry in Lancashire.

Mr. Straw: Where will the engines come from?

Mr. Channon: I will deal with that if the hon. Gentleman will allow me. The result of the Leyland truck decision that I have announced today—the effect would have been the same whatever the decision — is the rationalisation of that industry. As a result Leyland will produce good light trucks for the merged company. That will result in a massive increase in exports. There will be a substantial part of engine requirement for Leyland sourced from United Kingdom manufacturers. I believe that the prospects for the components industry and the trucks are better under this proposal than the alternative proposals.

Dame Jill Knight: Is my right hon. Friend aware that the survival of literally thousands of small businesses depends on their continued ability to provide component parts to the Austin Rover Group? Has he a word of encouragement for them today? What effect does he believe his announcement will have on them?

Mr. Channon: I can help my hon. Friend on that point. My announcement will ensure a securer future for the Rover Group and will therefore mean a securer future for the component manufacturers. I believe that she can tell her constituents who are involved in the components industry that my announcement today on the Rover Group will provide component manufacturers with better opportunities, provided they are reliable, produce good quality goods, deliver on time and charge the right price.

Mr. D. N. Campbell-Savours: Will the proceeds of the sale go to the Government or the company? Is it not true that the great majority of engines will, following this deal, be built in Holland and shipped to Britain?

Mr. Channon: It will depend on the sort of engine. The light engines will be manufactured in the United Kingdom and, over a period of time, more heavy engines will be built in Holland. [Interruption.] I do not know why the Opposition find that so astonishing. It is perfectly obvious that that will occur as a result of rationalisation. That is what I announced in my statement. Opposition Members should pay attention. As a result of rationalisation, we will have a better truck industry throughout Europe and it will be achieved as a result of this Anglo-Dutch joint venture.
The proceeds of the sale will go to the owners of the company.

Mr. Derek Conway: Is my right hon. Friend aware that more than 1,000 people in Shrewsbury work at Perkins Engines? Approximately 300 of those workers manufacture the Eagle engine that is supplied to Leyland. My right hon. Friend's announcement that the heavy engines will be manufactured in Holland is of no comfort to those constituents. By the same token, I am sure that the House will agree that we are faced with an appalling situation because there has been much scaremongering on the radio by the Liberal spokesman who has neither the courtesy nor the guts to be in the Chamber to question my right hon. Friend.
Some questions need to be clarified on the Paccar offer. That offer would have enabled a better United Kingdom manufacturing base to be maintained as Paccar wishes to expand its European market, unlike the Dutch group that wishes to rationalise that market. What were the dates of the Paccar and DAF offers, the financial difference between the two and the percentage of the British manufactured content in the proposals? Does my right hon. Friend concede that this issue is not just one of European unity but of British jobs and the British manufacturing base? In that sense, the Paccar offer would have been far more welcome to the people of Shrewsbury.

Mr. Channon: I appreciate my hon. Friend's concern about his constituents in Shrewsbury and those who work for Perkins. Whatever the solution reached, there were bound to be different effects to different component manufacturers. There is no clear, black and white standpoint— it would affect different people in different ways. I assure my hon. Friend that we considered the Paccar proposals with great care, and indeed I welcome Paccar's investment in Britain.
We had to decide what proposal gave the best future for the company, and the Rover Group recommended to me that the DAF proposal was the better on the grounds that I have outlined to the House. For that reason, and that reason alone, we agreed to accept the recommendations of the DAF proposal because it provided better choice.
Of course we considered the Paccar proposals extremely carefully. I can appreciate my hon. Friend's concern.

Mr. Nigel Spearing: The Secretary of State has admitted that the engines for the heavy vehicles will not be built at Leyland. Does that mean that Britain will no longer be a volume engine truck producer? Where will the engines come from for the remaining Leyland bus group? Does it mean that Britain will no longer be able to design, build and deliver abroad a British bus?

Mr. Channon: No, the hon. Gentleman exaggerates. The intention is that over a period of years the Dutch will


concentrate more on the heavy end of the market and the British on the light end. That is what is meant by rationalisation in this case. There will be more work for Leyland as a result of that and more light engines will be produced in Britain than previously.

Mrs. Ann Winterton: Is my right hon. Friend aware that the decision in connection with Leyland Trucks will strike dismay in the hearts of the manufacturing sector? I refer, as many of my hon. Friends have done, specifically to the components industry. What guarantees or information can my right hon. Friend give to the House about the British content of Leyland and the new series of vehicles in future as opposed to the Dutch content? Is he aware that major Leyland customers much preferred the Paccar option and that, conversely, the decision announced today may bring a silver lining to Sandbach in my constituency because those customers will, I hope, turn to the vehicles of Foden and ERF, which latter is the last independent British truck manufacturer left?

Mr. Channon: I know that my hon. Friend has a great deal of experience and knows the industry well. I hope that Foden and ERF will be successful. However, I cannot agree that the DAF deal is inferior to the Paccar deal, as she implied. We examined both extremely carefully and took account of the clear recommendation of the Rover group.
On the question of components, the DAF proposals envisage significant and continuing sourcing requirements in the United Kingdom—for example, for the majority of components in light trucks, suspension units, axles, engines and cabs. DAF intends to increase its purchasing in the United Kingdom. I am satisfied that the proposals will not have the fearsome effect on the component industries which my hon. Friend fears.

Mr. Gavin Strang: I accept the benefits of continued collaboration between Honda and Rover, but does the Secretary of State recognise that it is crucial that he gives a clear commitment to the long-term future of Rover as an independent British company, not least because of the damage that he caused the company when he tried to sell it to Ford?

Mr. Channon: As I said in my statement, the plan sets out the continuation of Austin Rover as a major producer and leading exporter of cars made in Britain. That is our plan and we shall achieve it.

Mr. Anthony Beaumont-Dark: Does my right hon. Friend accept that there will be widespread relief and genuine satisfaction that the Government share the view of many of us in the midlands that Austin Rover has a great future as a British company? Does he agree that that is shown by the writing off of £750 million? Does he agree that that is justified by the fact that it has obtained £184 million worth of fleet orders and has a splendid new vehicle in the Rover Sterling? Does he agree that, with this backing Rover must now save itself, its workers and our city's future through its own endeavours?

Mr. Channon: I agree with my hon. Friend. He mentioned fleet orders and it is encouraging that the group has received orders from Hertz, Avis, Europcar and others. The Government have done everything that the

Rover group has asked them to do, and now it is up to it in the market place. I have every confidence that the group will succeed.

Mr. Tony Blair: Since the Secretary of State talked about realism, may I tell him that the unanimous view of both unions and management at the Cummins plant in north-east England, where several hundred of my constituents work, is that the proposed merger with DAF is the worst possible thing that can happen to the United Kingdom car component industry? What estimate has he made of job losses in the car component industry? As he has yielded 60 per cent. in the merger plan to DAF, what guarantee can he give either on the heavy or light truck vehicle market that DAF will not use this as a means of transferring production to Holland?

Mr. Channon: The company will be placed under joint ownership. Rover group has 40 per cent. with a seat on both boards. Both DAF and Rover want to make the company a success and to float it successfully in 1989 or thereabouts.
It is extremely difficult to quantify the effects on Darlington. I know that hon. Members are worried about that and I have seen correspondence about it. There will be some gains in light engines and losses on heavy heavy engines. I hope that the position in Darlington would not be affected enormously by either of these proposals. Obviously that is a matter mainly for the company to consider, and I hope that the hon. Gentleman will get in touch with it.

Mr. Roger King: Does my right hon. Friend accept from me that the people of Birmingham will feel great relief and confidence as a result of his statement this afternoon, first, because Freight Rover will be a partner in a European truck and van making operation which will involve it in having large sums for new model products which it wishes to introduce, and, secondly, because in my constituency his endorsement of the K series engine will enable us to continue to make a considerable number of small and super-mini cars for a discerning world market?

Mr. Channon: I agree with my hon. Friend; he is right. Freight Rover has an excellent future under these proposals and the K series engine will be of great value to the company. The future of Longbridge looks extremely good. I welcome my hon. Friend's support, and I am sure that he is right that this will receive widespread support in Birmingham.

Mr. Jim Craigen: The Minister talked about expectations for the Albion plant and mentioned the options available to him. Can he be more specific about the assurances that he exacted about the future of the Glasgow plant and about the make-up of the 560 job losses?

Mr. Channon: I should like to help the hon. Gentleman as much as I can, but, if I am to be strictly accurate, all I can say is that under the proposals Albion will continue to supply axles to the new joint venture company. I hope that he finds that of some reassurance.

Mr. Michael Fallon: Will my right hon. Friend get it into his Department's head that the interests of the Rover Group are not identical with those of the British components industry? Why was the Paccar deal not preferred to the Dutch auction of British jobs?

Mr. Channon: I accept my hon. Friend's initial remarks: the interests of the components industry may or may not be exactly the same as the interests of the Rover Group. Different matters must be considered. I considered all those factors before accepting the Rover Group's proposal. If the Paccar proposals had been better, the Government would have accepted them. For all the reasons that I have given to the House, we believe that the DAF proposal is superior, which is why we accepted it.

Mr. Robin Corbett: Is the Secretary of State aware that what he has said about the AR8 and the K series engine will be welcomed in Birmingham and the west midlands? Can he clarify the position of the AR6? Will he also please explain how exporting more than 2,000 jobs and ending large truck engine production will do anything to protect our manufacturing base?

Mr. Channon: I am grateful for the hon. Gentleman's remarks about the AR8 and the K series engine. Everyone regrets the job losses, but they were inevitable under any commercial solution. I hope that the House will understand that. The losses are not caused by the DAF proposal, but would have occurred under any conceivable commercial proposal that the House had to consider. That is because for years there has been massive overcapacity in the commercial truck industry in Europe with massive losses. At present Leyland's losses are running at £1·5 million a week. There will be investment of about £200 million in the K series and related gearbox. That is the continuing commitment to the small car sector that the Rover Group is showing. Obviously the timing of further investment will be for it to decide and, no doubt, it will bear in mind what the hon. Gentleman has said.

Sir Dudley Smith: Does my right hon. Friend agree that the car components industry is crucial to the west midlands? Given those circumstances, will he do everything to encourage the company — I welcome his announcement — to buy British where everything else is equal? With regard to Leyland, is my right hon. Friend aware that the Opposition will never learn that any enterprise cannot trade at a loss forever?

Mr. Channon: I agree with my hon. Friend, and I shall certainly do what he wants. I hope that the House realises that in the long term manpower levels in component firms will benefit from the fact that Freight Rover and Leyland Trucks will have a higher rate of production. That must be good for the component industry.

Mr. Dennis Skinner: Why can the Dutch Government build trucks when the Tory Government cannot? The only thing that the Government are capable of is sending a boy genius from Guinness to the Dispatch Box to tell us that we shall get rid of another 2,500 jobs in Britain.

Mr. Channon: I have explained that on innumerable occasions. What I have been trying to tell the House, and I think the House as a whole understands it, is that this will increase production and provide a securer future for the truck industry.

Mr. Bowen Wells: Is my right hon. Friend aware that he deserves the congratulations of the House and the country on preserving a manufacturing base for trucks in Britain? Is he aware that the strength of the DAF organisation, with its distribution in Europe, will

enable us to build a new company which is capable of competing with its strongest rivals in Europe? Is he aware that, far from there being 2,500 job losses, which are regrettable, what would have happened, if he had not made this proposal to the House, is that we would have lost more than 5,000 jobs with the closure of the Leyland trucks factory?

Mr. Channon: I hope that the House realises that, with this joint venture, we shall have one of the largest commercial vehicle companies in Europe, with a European-scale operation, volume increasing and a larger number of trucks being produced. That must be good news, not bad news.

Mr. Derek Spencer: Does my right hon. Friend agree that the Labour party does not understand the difference between a business which is a wealth creator and a business which is a wealth consumer? For far too long, Leyland Trucks has been a voracious consumer of wealth. The best chance that we have of turning it into a wealth creator is the arrangement that my right hon. Friend has announced.

Mr. Channon: I entirely agree with my hon. and learned Friend, and I am grateful to him.

Mr. Tony Favell: How much will this merger cost the taxpayer?

Mr. Channon: We shall write off the debt in the bus and truck operations. In some senses, one could say that that has already been lost. I can assure the House that there will be no further call on the Rover Group for the losses—which I hope will not exist—in buses and trucks in the future. That is good news for the taxpayer.

Mr. Tony Baldry: Does not the creation of 500 new jobs at Cowley demonstrate that, if the British car industry produces cars of the quality that people want to buy, it leads to more jobs on the production line? The greatest burden that Austin Rover at Cowley now carries is the Oxfordshire Labour party. The Labour-controlled city council and the Labour-dominated county council are vying with each other as to who places the greatest percentage increase in rates on Rover, and the greatest burden on businesses by extracting further rates from them.

Mr. Channon: I am not in the least surprised by what my hon. Friend has said. I am sorry to hear it.

Mr. Robin Corbett: That is not true.

Mr. Channon: If my hon. Friend the Member for Banbury (Mr. Baldry) says that it is true, I am sure that it is.
As to the prosperity of Cowley, as my hon. Friend points out, I am glad that Austin Rover has recently taken on 500 people. I am glad that it has also won orders in the fleet car sector. That is extremely good news.

Mr. Kenneth Warren: May I support my right hon. Friend's conclusion that this is a good deal? Unless there had been such a deal, there would have been no jobs at Leyland Trucks. I support the statement that was made by my hon. Friend the Member for Congleton (Mrs. Winterton), but, in evidence given to the Select Committee on Trade and Industry last week, the


directors of Leyland Trucks told the Committee, in public session, that there had been no consultation between them and the corporate directors of Rover as to their future.

Mr. Channon: I am grateful to my hon. Friend for his support. What I have announced today is the considered opinion of the Rover Group, which the Government have independently considered. The Government came to the view that it is in the national interest that this proposal should go forward. It is the best opportunity that we have; it is a good opportunity. I hope that it will be widely welcomed. It is good news for the car and truck industry and Freight Rover.

Mr. John Smith: The Secretary of State said that Rover will have two seats on the hoard. How many seats are there on the board? Will the right hon. Gentleman tell us how many jobs will he lost in the Netherlands truck industry and the extent to which capacity in the Dutch motor vehicle industry will suffer as a result of this merger?

Mr. Channon: The right hon. and learned Gentleman omits an important point — [Interruption.] I am surprised that Opposition Members do not like me answering the questions that they keep asking me. The right hon. and learned Gentleman omits the important fact that the DAF operation is profitable. It has been making money, whereas Leyland Trucks has been losing hundreds of millions of pounds over the years. That is the difference between DAF and Leyland Trucks. That is why these steps have had to be taken. Any alternative steps that would have had to be taken would have been worse than these proposals, which provide a secure future for the truck industry.

Mr. John Townend: On a point of order, Mr. Speaker.

Mr. Speaker: I shall take points of order after the business statement.

Business of the House

The Lord Privy Seal and Leader of the House of Commons (Mr. John Biffen): With permission, Mr. Speaker, I should like to make a statement on the business for next week.
MONDAY 23 FEBRUARY—There will be a debate on the report of the Sizewell B public inquiry on a motion for the Adjournment of the House.
TUESDAY 24 FEBRUARY — Remaining stages of the Ministry of Defence Police Bill [Lords].
Motion on EC documents relating to the Commission's proposals for the provision of free food to the most needy. Details of the documents concerned will be given in the Official Report.
Motion on the Appropriation (Northern Ireland) Order.
WEDNESDAY 25 FEBRUA:RY — Opposition Day (9th Allotted Day). Until about seven o'clock there will be a debate entitled "Priorities for the Elderly". Afterwards there will be a debate entitled "Health Care and Services for the Elderly". Both debates will arise on Opposition motions.
Motion on the annual report from the European Court of Auditors for 1985. Details will be given in the Official Report.
THURSDAY 26 FEBRUARY — Consideration of Lords amendments to the Teachers' Pay and Conditions Bill.
FRIDAY 27 FEBRUARY—Private Members' motions.
MONDAY 2 MARCH—There will be a debate on Welsh affairs on a motion for the Adjournment of the House.

[Tuesday 24 February Relevant European Documents
(a) Unnumbered Intervention food to meet hardship Wednesday 25 February
(b) OJ C321 The European Court of Auditors' Report for 1985

Relevant Reports of European Legislation Committee
(a) HC 22-vii (1986–87), para 1 and HC 22-viii (1986–87), para 2
(b) HC 22-ix (1986–87), para 1.

Mr. Neil Kinnock: May I thank the Leader of the House for granting a debate on Welsh affairs as near as possible to St. David's day?
We have just had a statement from the Secretary of State for Trade and Industry on Leyland Truck, which gave us news of a £750 million write-off, major job losses and further industrial retreat under the Government, all to provide a bargain package for a foreign competitor that will strip the company, if not shut the company or substantial parts of it.
In view of those circumstances, and the continuing pressures on Bedford vehicles at Bedford and Luton, and other difficulties in the motor vehicle industry, can I ask the right hon. Gentleman to provide us soon with the opportunity, in Government time, for a debate on the motor vehicle industry in the United Kingdom?
There are serious implications for the Scottish economy in the closure of the Caterpillar tractor plant at Uddingston, near Glasgow, with the loss of 1,200 jobs. I understand that the Prime Minister's approach to the company has been rebuffed. Two weeks ago I asked if the Leader of the House would arrange a debate on the issue in Government time. Will he now do that?
Today, as the right hon. Gentleman knows, the House of Lords is debating its Select Committee report on research and development in Britain. In view of the serious conditions arising from under-funding, the brain drain and proposed further cuts, and the grave warnings which were given yesterday by the Committee of Vice Chancellors and Principals, will the Leader of the House see that we have a debate in the near future in this House on all these matters, that are of great national interest, as one of his right hon. Friends earlier asked the Prime Minister?
Will the right hon. Gentleman arrange, as soon as possible, a debate on the proposed privatisation of Rolls-Royce? The Government are selling off the best known name in engineering—nationalised at a previous date by a Government which the right hon. Gentleman supported— and selling it off for next to nothing. It is vital that the House is able to give its view on this further effort to rip off important national British assets.
In the light of yesterday's announcement by the Secretary of State for the Environment that he is scrapping more of the Government's pernicious legislation affecting local government services, will the Leader of the House arrange for a series of statements by Ministers to tell the House what other legislation is to be scrapped? Such a move would no doubt help the Leader of the House by giving him the time to allow me and other right hon. and hon. Members to raise the. questions which are of real importance to the people of this country.

Mr. Biffen: I thank the right hon. Gentleman for the restrained and courteous way in which he put his six points, doubtless within the terms of the Wakeham-Foster concordat on revised relations. I accept his congratulations on having the Welsh affairs debate as near St. David's day as possible. Indeed, if it were on St. David's day, we would all be here on a Sunday. That reform would not have marked me out as a welcome innovator.
The right hon. Gentleman mentioned the statement which we have just heard from my right hon. Friend the Secretary of State for Trade and Industry. It was an important statement which was highly welcome to the Government. The right hon. Gentleman rightly observed that the announcement involves, among other things, a substantial write-down in Treasury finance. I shall, of course, consider the possibilities of having a debate on the motor industry, as the right hon. Gentlman requested.
The right hon. Gentleman requested a debate on the closure of the Caterpillar plant in Scotland and on research and related topics, not least in the context of the consideration today of those subjects by their Lordships. Both matters are of general interest throughout the House. We might consider through the usual channels what facilities we can provide.
I note also the right hon. Gentleman's request for a debate on Rolls-Royce. That is also a matter that could most profitably be pursued through the usual channels.
Finally, I have to dissent from the right hon. Gentleman. He said that my right hon. Friend the Secretary of State for the Environment had announced the scrapping of legislation. I thought that a great deal of my right hon. Friend's time was devoted to saying that it was only postponed. I have no wish to speculate on how these matters will proceed, but I suspect that many Conservative

Back Benchers would carefully attend to these topics in some general election at some future date. The request for a series of statements in relation to the scrapping of legislation is unnecessary, and I think that it was put forward in a mischievous sense.

Mr. John Stokes: Will my right hon. Friend allow time for a debate on the teaching of English in our schools because, under the new GCSE proposals, it appears that that will be phased out? After all, is not history a pillar of our society and to be ignored at our peril? May we hear about King Alfred and the cakes, about Queen Elizabeth I inspecting the troops at Tilbury and, of course, about those innumerable occasions when we beat the French?

Mr. Kinnock: It would not include next Saturday.

Mr. Biffen: It should go on record that the Leader of the Opposition said that it would not include next Saturday, because that would mark out just what are his powers of prophecy.
My hon. Friend raises an important point. In the context of our present education reforms, especially in the GCSE, there is a lively interest in the manner in which English is taught. I shall draw my hon. Friend's points to the attention of my right hon. Friend the Secretary of State for Education and Science.

Mr. David Alton: Will the Leader of the House try to find time for a debate on the prayer in the names of my right hon. Friends the Members for Tweeddale, Ettrick and Lauderdale (Mr. Steel) and for Plymouth, Devonport (Dr. Owen) against the order imposing charges on milk producers for unsolicited inspections by officials of the Ministry of Agriculture, Fisheries and Food?
Many Conservative Members have signed early-day motion 601, which draws attention to these extra charges.
[That this House calls upon the Minister of Agriculture, Fisheries and Food, not to impose charges on milk producers for unsolicited inspections by his officials which are any higher than the charges imposed on restaurants and cafes for visits by public health inspectors, or on factories for unsolicited inspections by the Health and Safety Executive.]
Does the right hon. Gentleman agree that these charges are of considerable concern throughout the House and that the dairy industry is very worried about this unnecessary imposition?

Mr. Biffen: The hon. Gentleman's long-standing commitment to the dairy industry is well known. On that basis, of course, I look charitably on his remarks and say that this matter perhaps could be considered through the usual channels.

Mr. John Wilkinson (Ruislip—Northwood): I remind my right hon. Friend that, whereas certain parts of the legislative programme can be judiciously postponed, the same does not apply to the space programme? Will my right hon. Friend persuade our right hon. Friend the Minister for Information Technology to come to the House at an early date to announce his Department's decisions on the British national space programme, as a report from the British National Space Centre has been sitting on his desk for many weeks?

Mr. Biffen: No doubt my hon. Friend will have noted that the Department of Trade and Industry is the first


Department listed for questions on Wednesday. I shall refer his comments to my right hon. Friend the Minister responsible for space technology.

Mr. Jack Ashley: May we have a debate on disablement in addition to the debate which we had last Tuesday? I am sorry that during that debate I said that it was all about the Prime Minister's veracity. I said that in the heat of the moment, and I should like to withdraw it completely. The debate was about the Prime Minister's selective use of statistics. We want to answer those selective statistics in a further debate.

Mr. Biffen: It is characteristic of the right hon. Gentleman's generosity that he should seek to withdraw words that he thought might prove offensive to my right hon. Friend the Prime Minister. I give him as a solace the fact that there are
lies, damned lies and statistics.
Therefore, if a statistical analysis is at the centre of the dispute, I think that we should all be rather generous.
I shall consider the right hon. Gentleman's other point, but he has already drawn my attention to the fact that we debated the topic only last week. I know that it is one that raises general interest in the House.

Mr. Andrew MacKay: I know that my right hon. Friend is aware of the concern expressed by my constituents and others about excessive development, especially in the south-east of England, and future planning policy. They are especially worried in the light of recent speeches by the hon. Member for Birmingham, Perry Barr (Mr. Rooker) on behalf of the official Opposition, in which it appears that the Labour party is in close alignment with the developers to continue a policy of excessive development. May we have a debate at an early opportunity so that we can discuss the matter further?

Mr. Biffen: This is a matter of national concern but, even more, one of regional concern in the area part of which my hon. Friend represents. I shall certainly bear my hon. Friend's point in mind.

Mr. James Hamilton: Bearing in mind that the Prime Minister has written to the Caterpillar tractor company in America about the drastic closure of the Caterpillar plant in my constituency, will the right hon. Gentleman seriously consider the request made by my right hon. Friend the Leader of the Opposition for a debate on this serious matter? As the right hon. Gentleman is aware, 1,221 people at the factory have been made redundant and the factory has closed. In an area in which 22·1 per cent. of the population is unemployed, surely the subject warrents a debate so that we can come to a conclusion and retain the factory.

Mr. Biffen: I am sure that the hon. Gentleman very much appreciates the concern and interest that is being shown in the Caterpillar plant closure by my right hon. Friend the Prime Minister. I shall bear the hon. Gentleman's remarks in mind in the context of the answer that I gave the Leader of the Opposition.

Mr. Patrick McLoughlin: Will my right hon. Friend inform the House that Monday's debate will be on a motion to adjourn the House? Will he confirm that there will just be a discussion on the report in general and that no decisions will be made? Does my right hon. Friend expect a vote to be taken?

Mr Biffen: My hon. Friend is absolutely right. The motion is drawn in such terms because my right hon. Friend the Secretary of State for Energy has said that he wishes to hear the views of the House before he takes a decision. In those circumstances, I cannot see what purpose a vote on a motion for the Adjournment of the House will achieve.

Mr. Greville Janner: Is there any prospect of a debate on road safety? Is the Leader of the House aware that there is great anguish in my constituency at the death of Lisa Szymczak, aged 14, on a road where some of us have been trying for a long time to get safety measures adopted for the children at both of the major schools in that area, but that Government funding has been quite inadequate? The local authority has provided only a small number of crossings each year, as opposed to the large number that are required, and everyone seems to push the blame on to someone else. How many more tragedies will there be before the Government will help local authorities to deal with those matters?

Mr. Biffen: The hon. and learned Gentleman raises a topical matter. Doubtless he will have noted in any case that my right hon. Friend the Secretary of State for Transport is first for questions on Monday. I suggest that, at least initially, he tries his luck on that occasion.

Mr. Peter Bruinvels (Lexester, East): Will my right hon. Friend consider a debate on the power and abuses of local authorities? Will he especially join me in offering sympathy to the Leader of the Opposition because, without having a Local Government Bill before it, the House has been unable to curb some of the Left-wing abuses that have occurred in my local authority, which now has a Nicaragua training officer at a salary of £9,216? That is the current arrangement in Leicester. There is a "go gay" policy in Leicester. The rates increase has been reduced to 4·9 per cent. as a good electioneering point.
On the campaign for more houses in Leicester, I discovered in a parliamentary question that Leicester has 947 empty council houses. Will my right hon. Friend therefore provide time for us to highlight the obvious abuses of Left-wing loony councils that spend our money as ratepayers to promote Labour party propaganda on the rates?

Mr. Biffen: The weekly unfolding drama of Leicester matches anything that can be produced by "EastEnders". I will consider my hon. Friend's request that Government time be made available for such a debate, but in the meantime I hope that he will also try to see what opportunities he can take elsewhere in the parliamentary programme.

Mr. Peter Pike: When the Leader of the House reconsiders through the usual channels the need for a debate on the privatisation of Rolls-Royce will he also take into account the importance of our aerospace industry, the effect of privatisation on the people employed in that industry and its effect on widespread areas of the country such as north-east Lancashire, which suffered drastically when that company was last in the private sector?

Mr. Biffen: I understand the hon. Gentleman's point that the aerospace industry in itself might possibly be an


appropriate topic for a debate, since that would incorporate Rolls-Royce, but those are matters for further consideration.

Mr. Harry Greenway: Does my right hon. Friend share my concern and that of the public on the position of the family and the fact that it is under repeated attack from many sides? Is he aware that I held a conference in my constituency on that theme—

Mr. Speaker: Order. Will the hon. Gentleman please relate his point to the need for a debate?

Mr. Greenway: I am coming to that, Mr. Speaker.
Will my right hon. Friend consider allowing a debate on that topic as a conference on that theme in my constituency last Saturday addressed by Cardinal Basil Hume, a professor on the subject of AIDS and the leaders of the Sikh, Hindu, Muslim and Free Church communities with Bishop Maurice Wood, drew an audience of hundreds over many hours. It highlighted the concern felt there and across the country on this important subject?

Mr. Biffen: Of courser j 3–8 my hon. Friend is absolutely right in identifying the role of the family in the context of many of the social problems that now beset the world of politics. I cannot immediately offer the prospect of a debate in Government time upon that topic, but I shall certainly bear those points in mind.

Mr. Donald Coleman: I join my right hon. Friend the Leader of the Opposition in welcoming the Welsh day debate on 2 March. As the Leader of the House is aware, I have had some experience of the speeches of Conservative Members on Wales. In the light of that, will he take note of his motion on the Order Paper today on short speeches? Will he advance that somewhat further so we might perhaps have a decision about that earlier than seems to be the case at the present time?

Mr. Biffen: I confess to lethargy at once, but it is lethargy at what is possibly the fruitless task of seeking a broad measure of unanimity before that proposal was written into Standing Orders as opposed to merely a Sessional Order. However, I accept the hon. Gentleman's spur.

Mr. Eric Forth: I know that my right hon. Friend is a keen student of European Community matters. He must be aware that, as this year unfolds, the budgetary problems in the Community are likely to become more acute. Is my right hon. Friend prepared to give the House time so that it may give its support to the Government in their strong stand against any further expansion of the European Community budget, and especially to express its desire that there should be no so-called intergovernmental agreements that fall outside the budgetary arrangements and the Fontainebleau agreement in order to continue strict financial discipline within the Community?

Mr. Biffen: I appreciate my hon. Friend's point; it is probably true that most of our Community debates take place within the framework broadly suggested by the Scrutiny Committee, but I shall look at that point further.

Mr. Nigel Spearing: On that very topic, on the third debate on Wednesday next relating to the EEC auditors' report, is the Leader of the House aware

that that massive report is qualification on qualification of those accounts? Will he, by seeking the assistance of the Comptroller and Auditor General, see that the motion that goes down in relation to that document reflects the contents and flavour of its criticism?

Mr. Biffen: I was not aware, but I am certainly not surprised and I will look at the point about the motion.

Sir Dudley Smith: Will my right hon. Friend consider providing a debate in the next few weeks in prime time on the subject of AIDS? I know that there was one debate at the turn of the year, but things have moved on since then through the Government's publicity campaign and the increasing awareness of the public of this dread disease and the anxieties that arise. In all the circumstances, Parliament should have the opportunity of considering the position as it is now.

Mr. Biffen: I take note of my hon. Friend's request. No one can deny that it is a most important topic, but perhaps for the moment I could leave it there.

Mr. Dave Nellist: Will the Leader of the House consider arranging an urgent debate on political asylum and refugee status, especially in the light of the extraordinary attempts and lengths to which the Government have gone over the past six days to expel 58 Tamil refugees, including several families, at Heathrow? If he can arrange such a debate, will he, as a preface to it, get the Foreign Secretary to telephone the high commission in Colombo to send a written report to the Minister of State, Home Office? The right hon. and learned Gentleman could then no longer say at the Dispatch Box and outside the Chamber that those people have no reasonable fear of persecution or that they are package tour political refugees. That high commission could tell him that, in recent weeks, 15 Tamil bodies a day are discovered in Jaffna in the northern peninsula of Sri Lanka and that the position is not much better in the civil war area of the east.

Mr. Biffen: I have no reason to doubt the good faith or the accuracy of any remarks of my right hon. and learned Friend the Foreign Secretary on this matter. At present the matter is before the courts. I do not wish to comment further, except to say that my right hon. Friend the Home Secretary has acted in the public interest and with widespread public support. I can offer no prospects of an early debate.

Mr. Steve Norris: May I commend to my right hon. Friend early-day motion 424, which he will know is supported on both sides of the House and which deals with community care for the adult mentally ill and mentally handicapped people.
[That this House, noting the Government's response to the Report of the Select Committee on Social Services on Community Care for Adult Mentally Ill and Mentally Handicapped People, HC, 1984–85, 13, calls for an early debate on the replies to the Committee's recommendations, in view of the widespread and continuing concern.]
Will my right hon. Friend bear in mind that that unanimous report deals with one of the most important health care issues before us today and does not deserve simply to lie upon the shelf'? It addresses some of the most important considerations before the National Health Service today.

Mr. Biffen: My hon. Friend is absolutely right in identifying the importance of that topic. In the immediate future anyway, there is no available Government time for a debate upon the subject, but I shall bear his point in mind.

Mr. Jeremy Corbyn: Has the Leader of the House had an opportunity to study early-day motion 626 concerning the treatment of asylum seekers?
[That this House is alarmed that the Home Secretary tried to remove 58 Sri Lankan Tamil asylum seekers from Britain after refusing to allow honourable Members to place stops on their removal in accordance with the procedure laid down by this House; is further alarmed that after notification of their intention to seek judicial recourse he further tried to remove them; notes with satisfaction that this attempt to circumvent the due process of law was thwarted; is concerned at Her Majesty's Government's attempts to renege on their obligations to asylum seekers; and demands an undertaking that there will be no recurrence of this disgraceful episode.]
It has already been signed by 16 hon. Members and it draws attention to the way in which the Home Secretary and the Minister of State, Home Office sought to circumvent the due process of law in seeking to remove 58 asylum seekers from this country before their case could be properly considered.
Does he not feel that, in view of what happened to those 58 people and the condition in which many Tamil people are living in Sri Lanka, it is essential that the matter be debated? Is he not also aware that unless there is some confidence that the British Government are prepared to uphold their obligations to the United Nations charter concerning people seeking asylum, it is essential for the matter to be debated in the House so that the Government's position can be clarified?

Mr. Biffen: I am fully aware of the early-day motion on the treatment of asylum seekers in the name of the hon. Member for Islington, North (Mr. Corbyn). However, I am sure that he will appreciate that my reply to his hon. Friend the Member for Coventry, South-East (Mr. Nellist) has covered the points he has raised.

Mr. Tony Banks: Does the Leader of the House recall a most unhelpful reply that he gave me to a parliamentary question about the use of Westminster hall? Does he not think it scandalous that such a large space should be unused for so long? Will he arrange for a debate so that we may discuss some of the proposals for a better use of that facility, certainly by some of the arts groups in London such as dancers, musicians and painters who would like to use the space? The people of London and visitors could come to see it and we could turn Westminster hall back into the thriving heart of the Palace of Westminster that it once used to be.

Mr. Biffen: I do not want the hon. Gentleman to be under any misapprehension. I now give a personal view; I think that one of the great attractions of Westminster hall is how little it is used.

Mr. D. N. Campbell-Savours: In the light of the publicly declared concern by the Leader of the House on developments in the City over the past 12 months, will he arrange for the Secretary of State for Trade and Industry to make an interim statement as to the nature of inquiries being carried out by the Department of Trade and Industry inspectors into various City institutions?

Mr. Biffen: The hon. Gentleman will have an opportunity to raise that subject when my right hon. Friend the Secretary of State for Trade and Industry is top of the list for questions on Wednesday.

Early-day Motions

Mr. John Townend: On a point of order, Mr. Speaker. We always abide by your decisions and try to take your advice. It would be helpful if you could give a little guidance and clarification to the House. Over the past two or three years there have been a number of early-day motions which have attacked not only the personal integrity of the Prime Minister but members of her family. Indeed, they have included statements which, if repeated outside the House, would be actionable. Would you tell the House in what way those early-day motions differ from the proposed early-day motion tabled by my hon. Friend the Member for Shipley (Sir M. Fox), which was rejected by you? Is there a difference, or has there been a change of ruling? We need to know exactly where we stand in the future.

Mr. Eric Forth: Further to that point of order, Mr. Speaker. I, like most other Back Benchers, have become aware over the past 12 hours or so of the events yesterday and during the evening, and we have heard through the media about a certain involvement of yourself and the Chief Whips. Could you let me and other Back Benchers know exactly where the House now stands with regard to statements, either in the form of early-day motions or, indeed, unsupported and unsubstantiated allegations and statements made in the House about individuals either in the House or outside? We need to know where we stand now, the importance of what has happened over the past several hours, and the effect that it will have on Back Benchers on both sides of the House, particularly those who have been prone recently to make unsubstantiated allegations, so that we know exactly what may or may not be done within the House.

Mr. Peter Bruinvels: Further to that point of order, Mr. Speaker. I was in my constituency yesterday and I came back to the House at about 7 o'clock and went to the Table Office wishing to sign the three early-day motions in question, all of which I supported. I would be grateful to find out from you when it was decided that hon. Members were no longer able to sign those early-day motions. Was one of the reasons the fact that the Leader of the Opposition was alleged to be anti the monarchy? If that had been removed, would that early-day motion have been—

Mr. Speaker: Order. Since the matter has been raised, I shall clarify the position. I do not usually refer in the House to rulings that I have made in private. However, the House may wish to know that last night I directed that three early-day motions submitted by the hon. Member for Shipley (Sir M. Fox) and others about the Leader of the Opposition should not be printed. That was at 7.30 in the evening. In my opinion they were irregular and not a proper subject for debate, being, in the words of "Erskine May" — the hon. Member for Leicester, East (Mr. Bruinvels) will find it on page 382—
designed merely to give annoyance.

This gives me the opportunity to say that I deprecate the Notice Paper being used for personal attacks by one hon. Member upon another, and I hope that the House can conduct its affairs without recourse to such attacks.

Mr. David Alton: Further to that point of order, Mr. Speaker. In view of the support that the hon. Member for Workington (Mr. Campbell-Savours) has just been giving you in making your ruling, may I draw your attention to early-day motion 550 and ask that your ruling be made retrospective in view of the embittered, hateful and totally untruthful statement that the hon. Member for Workington makes about my right hon. Friend the Leader of the Liberal party when he says that he should
advise the House what sums have been paid or agreed to be paid to the Alliance by Mr. Ernest Saunders and when and how such payments were arranged"?
It was suggested by the hon. Member for Workington that Mr. Ernest Saunders was offered a peerage by my right hon. Friend the Leader of the Liberal party. That is unsubstantiated and untrue. Therefore, I hope that you will also rule on that.

Mr. Speaker: I do not think that we want to have a debate upon this. I cannot make rulings retrospective. Every motion that is outside the normal scope is brought to my attention. I cannot recollect that long ago whether that particular motion was so brought to my attention. Nevertheless, I hope that the statement that I made today will make its impact on the House, because we should use our freedom of speech and the freedom of the Notice Paper with the greatest care particularly if we impute any motives or dishourable conduct to those outside the House who have no right of reply.

Mr. Campbell-Savours: Further to that point of order, Mr. Speaker. I should like to clarify the record. The hon. Member for Liverpool, Mossley Hill (Mr. Alton) referred to two amendments, one of which is mine. The one referring to money was tabled by the hon. and learned Member for Perth and Kinross (Mr. Fairbairn).

Mr. Alton: The hon. Gentleman added it.

Mr. Campbell-Savours: I did not. I tabled the amendment that appears before that. The hon. Gentleman has not read the first amendment. If he reads it he will note that I asked the Leader of the Liberal party to make a statement. Perhaps the subtlety of it has escaped the hon. Gentleman.

Mr. Alton: Further to that point of order, Mr. Speaker. As my right hon. Friend the Leader of the Liberal party has tabled an amendment to that proposed amendment, I hope that the hon. Member for Workington will withdraw his insinuations.

Mr. Barry Porter: Further to that point of order, Mr. Speaker. I thought that the purpose of your ruling yesterday was to try to get the House to behave like adults and, if at all possible, like gentlemen. If that was the purpose of the exercise, I certainly support it.

Mr. Speaker: I am grateful to the hon. Gentleman.

Orders of the Day — Banking Bill

New Clause 2

As amended in the Standing Committee, considered.

OBJECTION BY DIRECTION OF THE TREASURY

'(1) The Treasury may direct the Bank to serve a notice of objection under this section on a person—
(a) who has given notice under section 21 above of his intention to become a shareholder controller of any description of an institution; or
(b) who has become such a controller without giving the required notice under that section,
if it appears to the Treasury that, in the event of his becoming or, as the case may be, as a result of his having become, such a controller, a notice could be served on the institution by the Treasury under section 183 of the Financial Services Act 1986 (disqualification or restriction of persons connected with overseas countries which do not afford reciprocal facilities for financial business).

(2) No direction shall he given in a case within subsection (1)(b) above more than three months after the Treasury becomes aware of the fact that the person concerned has become a controller of the relevant description.

(3) Any notice of objection served by virtue of a direction under this section shall state the grounds on which it is served2.—[Mr. Ian Stewart.]

Brought up, and read the first time.

5 pm

The Economic Secretary to the Treasury (Mr. Ian Stewart): I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker (Sir Paul Dean): With this we may discuss the following: Government new clauses 3 and 4.
New clause 6—Regulations regarding changes of control—
'Without prejudice to the provisions of subsection (9A) of section 36 of this Act the Treasury shall after consultation with the Bank make regulations including regulations applying sections 21 to 24 with appropriate modifications to enable the Bank to apply to a significant shareholder the restriction provided for by section 24(2)(b) of this Act.
Government amendments Nos. 7 to 11.
Amendment No. 12, in clause 22, page 16, line 23, leave out 'and' and insert 'or'.
Amendment No. 13, in page 16, line 32, at end insert—
'(1A) Where the Bank considers that it may be contrary to the interests of the United Kingdom, or any substantial part thereof, for a person who has given a notice under section 21 above to become a controller of the description in question of the institution it shall inform the Treasury; and if the Treasury is satisfied that it would be contrary to those interests for him to become a controller of that description of the institution it may direct the Bank to serve a notice of objection on him.'.
Government amendment No. 14.
Amendment No. 15, in page 16, line 33, after 'objection' insert 'under subsection (1) above'.
Government amendments Nos. 16 and 17A.
Amendment No. 17, in page 17, line 6, after 'objection' insert 'under subsection (1) above'.
Government amendments Nos. 18 to 24, 32 and 38.
Amendment No. 59, in clause 102, page 74, line 17, leave out '15 per cent.' and insert '10 per cent.'.

Mr. Stewart: It might be for the convenience of the House if at this stage I confine myself to describing the purpose of Government new clauses 2, 3 and 4, and then,

if I catch your eye at a later stage, Mr. Deputy Speaker, and with the leave of the House, I can respond to a debate which will no doubt touch on a number of wider issues in relation to the other new clauses and amendments.
New clause 2 deals with reciprocity. The Financial Services Act contains power to refuse, remove or modify the authorisation of an institution whose country of origin does not offer to British institutions reciprocal facilities for financial business. These provisions apply to banking, investment and insurance businesses and were introduced to help British firms gain access to overseas markets, but because a substantial part of banking business is based on short-term deposits it is possible that a threat to revoke or even to impose conditions on a bank's authorisation will have adverse effects on public confidence in the institution and so be against the interests of its depositors.
The new clause would allow the Treasury to direct the Bank of England to object on reciprocity grounds to the acquisition of controlling shareholdings in British banks before that takes place and if necessary to block voting rights on the shares or to require divestment. These provisions could apply if the potential shareholder's country of origin does not allow British financial institutions equivalent access to its markets.
New clauses 3 and 4 relate to unsuitable shareholders. During the Committee stage of the Bill, anxieties were expressed by hon. Members on both sides about the effectiveness of the Bank of England's powers to prevent substantial shareholdings being built up by persons who might be unsuitable on prudential grounds. I undertook to introduce a clause that would require anyone acquiring 5 per cent. or more of the shares in a bank to give notice to the Bank of England of such a holding and to provide information required by the supervisors. I also said that I would bring forward another clause to extend the I3ank of England's powers in relation to 15 per cent. shareholdings to cover such shareholdings at any time, and not merely at the point of acquisition. I believe that the two new provisions contained in new clauses 3 and 4 will greatly strengthen the Bank of England's powers in relation to undesirable bank shareholders.

Dr. Oonagh McDonald: Clause 2 is certainly an advance and I welcome the way in which the Economic Secretary has moved some way towards accommodating the views and anxieties that were expressed in Committee. We do not oppose that move in any way.
New clauses 3 and 4 offer a welcome response to the anxieties that were expressed in Committee, especially about the percentage of shareholding. We are glad that the Bank of England will have to be notified of the existence of significant shareholdings as defined in new clause 4. These new clauses are welcome additions to the Bill.
I beg to move amendment No. 13, in page 6, line 32—

Mr. Deputy Speaker: Order. The hon. Lady cannot move the amendment at this stage. It has been selected for debate with this group of new clauses and amendments. If the hon. Lady wishes to press her amendment to a Division, I shall at the appropriate time ask her to move the amendment formally.

Dr. McDonald: Thank you, Mr. Deputy Speaker. I shall ask for a Division on the amendent.
It is important that, in addition to the proposed changes in new clause 2, the additional powers mentioned in amendment No. 13 are added. The concern and anxiety felt by hon. Members on both sides of the House relates to the foreign takeover of British banks, partly because we expect the Government to rely on the clearing banks to be responsive to economic and monetary policy. We expect British banks to be more inclined to act in the national interest.
We recognise that there is a risk of British banks being taken over by foreign banks, particularly Japanese and American banks, whose stock market valuation is far greater than that of the main British clearing banks and might therefore wish to take over one of these banks in order to be even more firmly established in the activities of the City of London than they are at present.
It is interesting to note the way in which Japanese banks operate in this country. They concentrate on wholesale distribution, central and local government, energy and water suppliers, and building societies. They pick out the safest part of the market and lend very little to traditional United Kingdom manufacturing industries. One cannot help wondering what the impact would be on the availability of finance for industry if British clearing banks were taken over by Japanese banks that are operating in this fashion in the City.
We want to see British concerns remaining British. It is proper for such a view to be expressed not just to financial institutions but to manufacturing industry. As each day unfolds, we are sorry to note that the Government have no such desire to see manufacturing or any other concerns remaining in British hands. We are firmly of that view because of various statements that have been made. We would like to see British concerns—be they financial or manufacturing—remaining British and providing jobs and services in this country to the benefit of Britain.
The provision in new clause 2 depends on reciprocity. I understand the Economic Secretary's reasons for introducing the new clause, but that is not enough to ensure that British banks remain British. The chances of a British bank being able to take over a major Japanese bank or a major American bank are remote, because it would not be able to afford to do so, whereas the converse seems to apply. The chances of a British bank being taken over by a foreign bank are much more likely.
If we think of the major problems in the banking sector over the past 15 years or so, we find that the Bank of England has had to rely on the main British clearing banks to rescue banks that failed, first, in the secondary banking crisis of 1974, and again in the Johnson Matthey case. British banks were persuaded by the Bank of England to join in those rescue attempts. They may have done so with reluctance, and it may have required pressure from the Bank of England, but nevertheless they responded. They may not have played as big a part as the Bank of England might have wished, but they did respond.
I wonder whether a London clearing bank run from Tokyo or New York would have been quite so willing to engage with the Bank of England in rescue attempts. Such a bank might have transitory reasons for wishing to do so —it might wish to gain acceptance or popularity here—but we could not rely on that. Therefore, it is important from many points of view that the Government have

reserve powers to ensure that a bank remains British if it is considered in the national interest for that to happen. That is the purpose of my amendment. It goes beyond the provisions of new clause 2 and I think that it is right that it should do so.

Mr. William Cash: In Committee I raised a similar amendment to that on which the hon. Lady has just addressed the House because I felt it important to draw attention to what would happen if one or two of our main clearing banks were acquired by a foreign banking institution. I had, I suppose, Japan as much in mind as any other country. I wish to put on record the fact that I, and no doubt many of my colleagues, greatly welcome the arrival of the Japanese in the City of London. I believe firmly in the liberalisation of the market place in all matters, and in particular to relation to banks and financial institutions. Having said that, and having regard to the fact that we are also concerned in the Bill with prudential banking, I believe that there is an important question to consider in regard to prudential legislation.
We could easily get into a position where, for example, the Midland bank, with a capitalisation of about £1·9 million, would be easy prey to Namura with a capitalisation of £19 billion. The word "predator" is used loosely. With the economy doing as well as it is doing under this Government, and because many people would like to invest in this country, we would be unwise to leave ourselves exposed to the taking over of our major banks by institutions based in foreign countries, although we have much to learn from, for example, the Japanese on management in Nissan in the north-east and elsewhere. If it was not the Japanese who wanted to take over a major bank, it might be the Americans or the Germans. I do not think that I am taking a little Englander approach in being cautious about what could happen if we had that scenario.

Mr. Edward Leigh: My hon. Friend speaks of the need for the liberalisation of trade and he knows that the City of London depends on that, yet he argues in effect for the restraint of trade. Does he not believe it possible that America, and the protectionist lobby in America, might respond and thereby inhibit the workings of the City of London?

Mr. Cash: My hon. Friend perhaps has not taken account of the fact that our banking system is different from the banking systems in Japan, in the United States and in Germany. In the United States there are about 14,000 banks. In Japan there is a strong centralised banking system in which the Bank of Japan plays a pivotal role. In Germany the Bundesbank is part of the constitution. The distinction has to be borne in mind. I hasten to add that I am not going down the route of the amendment in the name of the hon. Member for Thurrock (Dr. McDonald)—quite the opposite. Indeed, as I was about to say, it is on record that I abstained on this amendment in Committee precisely because I wished to ensure that the Government had ample opportunity to consider other aspects of the arguments that I put in Committee; in particular the arguments relating to sections 183 and 185 of the Financial Services Act 1986, having been a member of the Committee which considered that measure.
5.15 pm
The amendment which my hon. Friend has proposed is very important, because it ensures reciprocity. We went


into this question in Committee on what is now the Financial Services Act. Hon. Members on both sides of the House will remember the arguments. We insisted upon, and got, reciprocity. I argued in Committee that we should have that as a minimum, in conjunction with monopoly and mergers legislation, to ensure that our banking system was not at risk. As I have said, if our main clearing banks were taken over by institutions based in other countries we would be severely at risk.
I go further. If other countries were to allow us into their banking systems on the same terms, my concern would be greatly allayed. At the moment it is not possible for us to get into the banking systems of other countries. The use of the reciprocity provision will enable us to make sure that there is a fairly even playing field. The matter could usefully be discussed under the GATT. No doubt my hon. Friend the Minister and his colleagues will do that. I congratulate them on the way in which they have treated the subject.
If any one of our clearing banks was taken over by a banking institution in one country, inevitably a bank in another country would want to take over another of our banks. It is precisely because we have only four main clearing banks that we need to be prudential in the legislation.
There is a further question, which we also discussed in Committee. I am referring to the efficacy of the monopolies and mergers legislation to deal with the other limb of the argument, which is not merely that we want reciprocity, but that we want control in the public interest in the context of monopolies and mergers legislation. My hon. Friend may recall that I said in Committee that, because the monopolies and mergers legislation was under review, it was difficult for us to know what would emerge. At the moment we run on the basis of competition guidelines, but there are questions whether that will be the case when the the review is completed. Therefore, it is difficult to assume that the competition law devised to deal with current policy will necessarily be the same in, shall we say, 18 months' time when, as I confidently assert, this Government will be handling the problems and the difficulties, as we always do with great competence and skill, of the ever-expanding liberalisation of the financial markets and the contraction of the time span, the time scale and the global village that we have to occupy.
The review of monopolies and mergers is central to the question of how we balance the sensible provisions of reciprocity which have been introduced by my hon. Friend — with, I have no doubt, the full approval of the Chancellor of the Exchequer and all the other members of the Cabinet. This is not a question of playing games. It is a question of serious economic, political and diplomatic importance.
The question is whether the monopolies and mergers provisions as they now stand will be adequate to deal with the situation. There are serious problems relating to the presumption that applies to references under the current monopolies and mergers provisions. Some would argue that it is the wrong way round, that all mergers are regarded as being in the public interest and, that one can make an adverse reference only if a case is regarded as against the public interest. That is something that I am sure will be reviewed, and it is of immense importance in the context of banking legislation and of any monopolies or mergers that might arise in the banking world.
Furthermore, there is no domino effect as between one decision and another. Unlike most of our other legal situations and cases, we do not, when considering monopolies and mergers legislation, operate on the basis of precedent. Each case is taken ad hoc. Therefore, I share the view of my hon. Friend when he ribbed me slightly over my reference to the Hong Kong and Shanghai bank as a precedent. He was quite right to point out that it is not possible to draw too much of a conclusion from that decision, but, as changes and the review are taking place, I believe that it is important to put on record the principles underpinning the application of the monopolies and mergers legislation to banking. I would be grateful if my hon. Friend could make a few remarks on that when he replies to the debate.
Another problem is the role of the Bank of England. There are people who believe that the status of the Bank of England has diminished to some extent. I do not believe that this is the case. It is important that we get that firmly on the record. It is crucial that the Bank of England should exert significant and substantial influence on legislation of this kind. I congratulate the Bank of England and, indeed, the British Bankers Association on their great help during the Committee's proceedings.
My hon. Friend will know that I am happy with the provisions relating to reciprocity. For the reasons that I have given, I shall not follow the hon. Member for Thurrock on her national interest point, although I suspect that the argument will rumble on. I shall watch the matter with great interest and with some sympathy, but for the underpinning reasons, not for the reasons that the hon. Lady has brought forward.
I have put down one or two other amendments which deal with the question of significant shareholders. I believe that there is a serious problem affecting merchant banks. My hon. Friend will recall that while I was absent on one occasion he kindly notified the Committee that an amendment was to come forward on Report and I was allowed about 30 seconds—I am not complaining, Mr. Deputy Speaker, for a minute—in which to deal with the question of significant shareholders. This is a problem that has attracted a great deal of attention in the City of London and I hope that I may be allowed to go into this question.
With reference to the Government's proposed 5 per cent. provision in relation to the significant shareholder clauses, the problem, in a nutshell — I said this in Committee — is that it does not incorporate any sanctions in the event of a person being deemed not fit and proper. The position is that the Bank of England may request information from a 5 per cent. shareholder, but if the bank considers that that person is not fit and proper it can take no further action unless the shareholding is increased to 15 per cent. At that point—this is crucial—the provisions applying to controller shareholders are triggered.
The proposed provision has a deficiency. It does riot recognise the serious practical implications and consequences to a deposit-taking institution and its business of a significant shareholding being in the hands of a person considered not to be fit and proper. Those serious implications and consequences are heightened rather than reduced by the public announcement of the shareholding that takes place under the Companies Act 1985, so the result may be the reverse of that intended.
It seems to me that there is no good reason for objection to a shareholder who is judged by the Bank to be fit and proper and whose intentions as a shareholder are in the interests of the deposit-taking institution. I believe that judgment must be made on a case-by-case basis. The purpose of the supervisory regime is to regulate the situation where the fit and proper requirements are not, or are not likely to be, met. It is in the interests of deposit-taking institutions, the Bank of England and the reputation and status of the City of London as an international financial centre that that should be so.
The nature of the business of deposit-taking institutions, particularly those operating in international markets in the corporate and in the Government sector, sets them apart from other commercial enterprises. Whereas an unwelcome shareholding of 5 per cent. might not affect either the management or the business of most commercial enterprises, it can have a damaging impact on a deposit-taking institution.
It is therefore important not only that there should be a requirement for the 5 per cent. shareholder to give written notification to the Bank of England and any further information that the Bank may request, but that the Bank should be able to take further action should it view the shareholders as not fulfilling the fit and proper requirement. As the Bill currently stands, a shareholder who is not considered fit and proper could, nevertheless, increase his stake by 200 per cent., to 15 per cent., over and above the level of 5 per cent. at which he must notify the Bank of his shareholding.
Under clause 24(2) the Bank is afforded powers to impose one or more of four restrictions on a shareholder controller on whom an objection notice has been served. In the case of a significant shareholder — which is defined as someone holding 5 per cent. or more, alone or with associates, which follows clause 102(3)(c) — it is appropriate that the Bank should have a sanction available to suspend voting rights for the part of any shareholding in excess of 5 per cent. should the Bank find that the shareholder is not fit and proper. The voting rights so suspended would be reinstated in the event of the sale of shares to a person who, alone or with associates, would hold less than 5 per cent. or who would thereby hold more than 5 per cent. but be deemed to be fit and proper. The shareholder would therefore not be prohibited from making a trade investment in terms of the dividend income of his shares and any capital uplift on his holding.
In introducing a clause dealing with a situation in whch a person requires a holding of 5 per cent. or more, the Government have recognised that there should be a mechanism for monitoring and investigating that person. However, that provision may not be adequate to prevent damage to the business occurring when a person who is not fit and proper continues his stake. It is necessary that the Bank of England should have power to take positive action before the sanctions at the 15 per cent. level become available. That power should simply be the ability to suspend the voting rights for that part of the shareholding in excess of 5 per cent.
5.30 pm
I make no apology for having explicitly and carefully explained the circumstances that underpin the new clause. The argument is complicated, but necessary. I am certain

that my hon. Friend the Economic Secretary will have listened to my argument with some interest and great care. I sincerely hope that at the appropriate time he will respond and the matter may be taken forward.
Finally, I want to consider the minor amendment, No. 12. It involves the substitution of the word "or" for "and" in clause 22. I sincerely hope that my hon. Friend will approve the amendment on the basis that it does not alter very much, although it seeks to achieve a great deal.

Mr. Austin Mitchell: I do not want to follow the line pursued by the hon. Member for Stafford (Mr. Cash) in his brief, courageous and exciting speech which had a stunning, if not mesmeric, effect on the Conservative Benches. I hope that the hon. Gentleman's speech succeeds in getting him a job with either the British Bankers Association or the Bank of England, for which he was clearly angling in the early part of his speech.
I welcome the support of the hon. Member for Stafford for amendment No. 13. The hon. Gentleman's argument about the effect of the Government on the British economy is one of the major arguments for amendment No. 13. The Government have produced a position rather like a fire sale or a sale of damaged goods in the major part of the economy and especially in manufacturing. That has allowed overseas organisations to enter this country with the prospect of taking over the damaged goods which the Government's economic policies have created in the market.
The hon. Member for Stafford produced a strong argument in favour of amendment No. 13. I do not wish to disparage the hon. Gentleman's support because I know that he always has the courage to carry through his bold declarations and to follow them up with his vote. If it becomes necessary, I hope that he will do so on this occasion.
I want to speak only briefly. I would have liked to be able to speak for longer, but my new clause 5, which would have reconstructed the Bill to provide for a banking commission, has not been selected, although it was important. I hope that there has been no subterranean interference by Barclays bank, Otley road, Shipley to sabotage my amendment. However, that is now out of the scope of the argument.
My hon. Friend the Member for Thurrock (Dr. McDonald) did not speak to amendment No. 59, but will the Economic Secretary to the Treasury tell us whether the basic intention of that amendment is, as I presume it to be, covered by the new clause? I hope that it is and I hope that that is why my hon. Friend the Member for Thurrock did not refer to it. I believe that the amendment is worth while, but I believe, too, that it is covered by the new clause.
The financial community is becoming more and more internationalised and intermeshed. There is clearly real cause for concern about penetration into banking institutions in this country. As our institutions become more international, so other institutions are moving into this country and the two sets of institutions—abroad and here — are in increasing likelihood of merging. Therefore, we must pay more attention to that problem.
Banking is a crucial institution in the economy. It is, as we say in Grimsby, sui generis and therefore requires the Government's particular attention. I hope that the Government would want to pay some attention to the national interest which is not necessarily served by foreign


takeovers of British banks, given the ramifications of those banks and the way in which their tentacles extend into the whole economy.
My hon. Friend the Member for Thurrock said that she was primarily concerned about the high street banks. That is correct, but we should also be concerned about the whole range of banking. Because of banking's unique nature, there is a special need for concern. That would be met effectively by amendment No. 13. That amendment does not say necessarily that the Treasury has to ask a bank to lodge an objection to every possibility of foreign takeover or intervention, it just states that the bank "may". In other words, it leaves it to the Treasury's discretion. In that context, the Treasury is the custodian of the national interest, which, particularly in banking, must be safeguarded even if the Government pay so little attention to it in other aspects of the economy.

Sir Julian Ridsdale: I want to support new clause 2. I was very interested in the Opposition's argument, especially their desire to place an additional safeguard against the huge strength of Japanese banks and financial institutions. There is a question of balance at the moment and I believe that the balance that the Government have achieved is about right.
It is terribly difficult to decide in these matters. In dealing with the Japanese at the moment in banking, we are not receiving the reciprocity of treatment that we should, either on the Tokyo stock exchange or in Tokyo itself. I should like to believe that new clause 2 is a warning shot to our friends who claim that it is their intention to create a freer trading system. We have a fair trading system at the moment. The Tokyo system is not completely open—as I would like it to be—and the City of London is far more open than Tokyo.
Those of us who deal and talk with the Japanese banks and business houses impress upon them as hard as we can the necessity for more open markets. That is the advice that I have been giving. However, I believe that the balance that the Government have achieved in new clause 2 is about right. I understand the Opposition's fears, but I would not go as far at this stage as they have gone, especially in connection with the United States. I remind the Opposition that the Midland bank bought the unfortunate Crocker bank. Perhaps it would have been better if the Midland had not done that. Nevertheless, we want to maintain an open banking system, not a closed one. Therefore, I support new clause 2, but would not want to go as far as the Opposition suggest at the moment.

Mr. Ken Weetch: I rise to support amendment No. 13 and I shall not be long about it. This amendment is of considerable importance because it seeks to asert the national interest in matters of bank control.
According to clause 21, anyone who intends to become a controller of an authorised bank must give notice. The Bank of England can object to such a notice on various grounds. For example, it can object if it considers that that person is not fit and proper or if the depositor's interests are at stake. These are wise precautions, but they are not sufficient.
We should protect ourselves in the Bill from the potentially damaging repercussions of foreign control over a British bank. There is a danger that we may be talking at cross purposes here and I accept the final point made by the hon. Member for Harwich (Sir J. Ridsdale). The

purpose of this clause is not to exclude foreign banks from the City of London, but to take steps when there is a chance that the repercussions will be damaging. We are talking about specific and not general intervention.
I take the point that the prosperity and the activity in the City of London has been enhanced by the activities of foreign banks. Nobody would gainsay that. We are talking about potential events. Amendment No. 13 should make the Economic Secretary think carefully. The arguments that I shall put forward in support of that are not mine. They have already been advanced by the Bank of England itself in an inquiry at which the Royal Bank of Scotland was the object of a takeover by the Hong Kong and Shanghai Banking Corporation and the Standard Chartered bank.
At that time, the arguments were clearly set out and their validity has not altered. First, the possibility of foreign control could interfere with the interests of the depositors of the bank. One cannot separate prudential matters from matters of national interest. It could well be that foreign control would make it more difficult to protect depositors' interests. Foreign ownership could well intefere with prudential supervision.
Secondly, if we were talking about a major clearing bank, it would make the Bank of England's task of financial control of the money supply, bank lending policy and the creation of control of credit much more difficult. Those dealings would be rendered more difficult if ownership and control were not in the United Kingdom.
Thirdly, banking and finance are becoming more international. At the same time, the distinction between types of banking and commercial investment functions is becoming increasingly blurred. As time passes, British banks will become more susceptible to foreign takeovers. We should not always resist mergers of this kind, but sometimes we should, and that is what the clause is about. In time, foreign control may reach a point at which no further foreign penetration is desirable. The national interest would then be at stake and amendment No. 13 would enable the Government to intervene on those grounds.
Fourthly, such intervention in the case of a foreign takeover could have an effect upon a region of Britain. The most quoted example is the one about which I have already spoken, the Royal Bank of Scotland. In Committee my hon. Friend the Member for Glasgow, Maryhill (Mr. Craigen) gave chapter and verse about the reservations north of the border regarding that very point. The point should be repeated and underlined.
Amendment No. 13 proposes that the Bank of England should be responsible for adjudicating in the national interest. The argument against that is that the bank's purpose should always be prudential and not political. Who are we kidding? Very often the Bank of England acts in a political way and there should be no difficulty about that. If the Bank of England does not know what Britain's political interests are, the Chancellor of the Exchequer could soon tell the bank precisely what is at stake. The national interest should figure largely in this Bill as the first point for consideration.

Mr. Anthony Nelson: I congratulate my hon. Friend the Economic Secretary on fulfilling a number of commitments that he made in Committee by bringing forward the new clauses. I admit that I am probably in a


minority of one about new clause 2, because I have some reservations about the implanting in legislation of protective measures that seek to provide reciprocity in the provision of financial or banking services.
That is not so unusual outside the House and many commentators, not least the Financial Times during the passage of the Financial Services Act 1986, took the view that it was wholly inappropriate for reciprocity provisions to be built into that Bill, which was principally concerned with investor protection. The commentators said that the importation of provisions specifically to try to put a lever on a foreign country or Government to allow reciprocal investment or banking facilities had nothing directly to do with investor or depositor protection. For that reason, I voted against that provision during the passage of the Financial Services Bill. Similarly, in Committee I expressed reservations about this Bill and about whether this new clause and the idea behind it are relevant to the basic purpose of this legislation, which is to provide an enhanced degree of depositor protection.
This is essentially a protectionist measure about which we ought to be circumspect. We should be reluctant to leap into legislation too soon because Britain has little to gain from erecting even contingent protective barriers. The prosperity, growth and vibrancy of the City of London rests as much as anything on the freedom of access that many foreign companies and countries have to it. The fact that the City has achieved such excellence is a reflection of the special skills and the freedom of integrity maintained in the City up to now.
I admit that new clause 2 is compatible and follows logically from what is already law in the Financial Services Act. If it is perceived to be of value, perhaps as a bargaining tool for Ministers in the context of the former Bill, it could reasonably be argued that it should be imported into this Bill as well. We must question whether it will genuinely be a spur to Japan or to other countries with strong financial services or banking industries to open their gates to us, or whether it will be a futile gesture and a bit of huffing and puffing to give the impression that we are doing something.
In my judgment, the plans of the Japanese financial and banking institutions will continue unchanged whether or not this clause is imported. The influence and financial muscle power that they deploy and the quality of many of the services that they offer, especially in international banking, are likely to make the growth of Japanese banks a secular trend. While I have some reservations, it is not my intention to resist new clause 2. New clause 3 fulfils an undertaking given in Committee by the Economic Secretary.
I should like to speak about new clause 4 in the context of what was said about it by my hon. Friend the Member for Stafford (Mr. Cash) because there seems to be some misunderstanding. Basically, notification of acquisition of a significant shareholding comes into effect when somebody acquires or maintains a 5 per cent. shareholding. As I understand it, my hon. Friend the Economic Secretary undertook in Committee to bring forward this new clause because of pressure from many hon. Members on both sides of the Committee. He said that a threshold of 15 per cent. would be retained, at which point the bank would have a right to decide whether a

person was fit and proper to have such shareholding and, if not, certain sanctions should be imposed. Some Committee Members said that 15 per cent. was too high.
My hon. Friend the Economic Secretary said—it was a reasonable and sensible compromise—"I share some of the sentiments behind that representation. I take the view that perhaps some requirements ought to exist when someone acquires more than 5 per cent., and the fact that he has to register and notify his shareholding at that stage will be taken into account if he increases his shareholding to 15 per cent., when different provisions come into effect."
That seemed to me to be wholly reasonable, given the impossible administrative burden of taking sanctions against someone who is deemed arbitrarily to be unfit and improper when his shareholding is over 5 per cent. If we went the whole way on this provision, I believe that it would undermine to some extent the 15 per cent. provision.
My hon. Friend the Economic Secretary has kept faith with the Standing Committee. He has taken account of the views expressed on both sides of the Committee about notification at a lower level, and we should not impede the progress of the new clause.
Amendment No. 13, in the name of the hon. Member for Thurrock (Dr. McDonald), prompts the thought that one has to be careful to define exactly what situations will or should trigger an assessment by the Government or even the Bank of England of a takeover. When someone becomes a 5 per cent. shareholder in a company—especially a bank—there are requirements for notifying that shareholding. Although 5 per cent. is a significant shareholding, it is not an effective or controlling shareholding, although it may buy the person concerned a seat on the board. When the shareholding rises to 30 per cent. it will not only effectively control the organisation or bank concerned but trigger a requirement to the effect that an offer must be made to the rest of the shareholders, in the case of a public company, to acquire it.
What happens now, without amendment No. 13? If a domestic or foreign organisation or bank acquires such a holding and seeks to use it as a springboard to acquire the whole of the bank, the case may be referred to the Monopolies and Mergers Commission. So we must ask whether the competition and public interests requirement in the Fair Trading Act, about whether a takeover should or should not be allowed, necessitates a rather novel and very specialised amendment such as this.
Admittedly, the Industry Act 1975 provides for a comparable right to prevent in the last resort a foreign takeover of a manufacturing company in this country when the national interest is involved. However, that legislation was not of the Conservative Government's making. It was a Labour Government's Act and it is not surprising that the hon. Member for Thurrock now seeks to introduce a clause that is compatible with it.
That is not in itself a compelling reason to accept the amendment. The Fair Trading Act provides wide enough discretionary powers to refer cases to the Monopolies and Mergers Commission so that a foreign predator can be questioned by it and, if necessary, a political decision can be made. That was what happened in the case of the Hong Kong and Shanghai Banking Corporation, the decision about which I thought was wrong. The report on that matter was one of the worst that the Monopolies and Mergers Commission has ever produced. The decision was


political. It concerned a so-called attempted foreign takeover and the Secretary of State of the day had no difficulty in referring it to the Monopolies and Mergers Commission.

Mr. Austin Mitchell: What about the House of Fraser?

Mr. Nelson: I should love to talk about the House of Fraser.

Mr. Jim Craigen: As the hon. Gentleman reminds us, the Hong Kong decision was a political one. In the light of what he has said, it is as well that he was not the Minister responsible for taking it. Is not the hon. Gentleman reading too much into the amendment? We are not trying to establish a ring fence. We are simply seeking to take out an insurance policy that may or may not be used.

Mr. Nelson: I accept the hon. Gentleman's remarks. Equally, he should concede that he and the hon. Member for Thurrock must show that the existing provisions are inadequate. Moreover, they have to argue that there are special compelling reasons applying to banking that do not apply and would not be allowed to apply to the rest of industry. This is a special and more restrictive insurance provision, to use the hon. Gentleman's phrase.
Of course the banking sector is important, but it is by no means unique. I believe that the amendment would imperil the freedom of the City and, more importantly, the principle that matters such as this should not be dealt with on a sectoral basis. If we want changes in the rules of competition or in the way in which a proposed merger is referred or politically decided, we should grasp the nettle and consider the matter in the context of the whole of industry.

Mr. Ian Gow: Does my hon. Friend agree that, although the hon. Member for Ipswich (Mr. Weetch) referred to a foreign takeover, amendment No. 13 mentions no foreign entity? If the amendment were included in the Bill, would it not be possible for discrimination to take place at the suggestion of the Bank of England and on the decision of the Treasury, not on the ground that the person was a foreigner but on quite different grounds?

Mr. Nelson: My hon. Friend does the House a service by drawing attention to that fact. The ambit of the amendment certainly goes wide. However, much of the debate has surrounded the possible threat from offshore predators and that is the most obvious kind of circumstance in which the amendment might be used.
As my hon. Friend has said, it could be put to a different purpose. We should be suspicious of this kind of planning and control. I support the new clause.

Mr. Ian Wrigglesworth: I rise briefly to support the broad sweep of the new clause and amendments that the Government have introduced and the amendment in the name of the hon. Member for Thurrock (Dr. McDonald). I must begin by declaring an interest. I am an adviser to Barclays Bank.
I should like to refer to what the hon. Member for Harwich (Sir J. Ridsdale) said. He spoke of getting the balance right, and that is what we are trying to do in the Bill.
The hon. Member for Chichester (Mr. Nelson) exaggerates the impact of the amendment. I prefer the belt-and-braces approach proposed by the hon. Member for

Thurrock and her hon. Friends to leaving things as they are. We need as much freedom as possible, and to that extent I agree with the hon. Gentleman. It is vital that British banks have the right to operate abroad.
The Midland bank takeover has been mentioned, and there are other examples of British banks operating overseas successfully — more successfully than on that occasion. We do not want to stop that happening. Neither should we stop the enormous contribution which overseas banks make to this country.
There is no doubt—here I part company with the hon. Member for Chichester—that other financial centres of the world, not least Tokyo, have proved tough nuts to crack. All the evidence suggests that the only way to crack such nuts is by being tough oneself. I think that the reciprocal arrangement is entirely justified. It is necessary to ensure that we have the right sort of arrangements to obtain the freedom that we want.

6 pm

Mr. Edward Leigh: The hon. Member for Glasgow, Maryhill (Mr. Craigen) said that the purpose of amendment No. 13 was not to erect a ring fence, but the hon. Member for Stockton, South (Mr. Wrigglesworth) spoke of the necessity for British banks to be able to operate abroad. Will that not be perceived as a ring fence and as a protectionist measure by foreign banks?

Mr. Wrigglesworth: The proposers of the amendment can speak for themselves, but I do not see it in that way, and would regret it if it were seen in that way. It seems to me to provide a degree of flexibility to ensure that there is no ring fence. It also provides the opportunity for direct action to be taken in this important sphere. Again, I disagree with the hon. Member for Chichester, because I consider that to be necessary.
Banking is different from industry. The banking institutions can have such a profound impact on the national economy—not only on individual firms and sectors of industry, but on the economy as a whole and on individual parts of it according to regional or other distinctions — that the national interest must be expressed in the way that it is. That is why I support what the Government are doing, hut with the addition of our amendment.

Mr. Alan Howarth: My purpose in speaking is to seek some additional elucidation about the Government's purposes, and to find out my hon. Friend the Economic Secretary's views on what powers the Government would have were the Bill to be enacted with the addition of the Government's new clauses.
It is well within the bounds of possibility that a Japanese or German bank would try to take over a significant British bank. My concern is not with the merchant banks or with the smaller banks—and I should declare my interest as public affairs adviser to a merchant bank. The merchant banks would expect to fend for themselves in the rough and tumble of the international financial world, and would be well able to do so. The process of mergers and the joining of financial forces within the City of London is already well under way. M y concern is with the position that would arise if a takeover bid were mounted for one of our clearing banks.
The clearing banks are unquestionably vulnerable to such an attempt. Even the American money centre banks are vulnerable to possible takeovers by the large Japanese banks.
An academic economist could mount a powerful case in favour of allowing such an event. There are good arguments against protectionism. It can be argued that Britain, as a relatively small economy with an exceptional stake in international trade, stands to lose more than other economies by resorting to protectionism. It could also be argued that it is never good for a business not to feel vulnerable either to competition or to the ultimate threat of takeover. It could be argued that essentially banks are no different from other businesses.
On the other hand, it can be and has been argued this afternoon that banks are different—that they are crucial to the financing of British industry, and that they have an indispensable part to play in the implementation of the policies of the Government of the day — monetary policy, credit policy, and so forth.
The economic arguments are quite finely balanced, but I favour the case against protectionism. I believe that the internationalisation and liberalisation of the financial markets will bring great benefits to this country and to the world economy. I welcome the contribution of the Japanese in the City of London, and I am very apprehensive about the predilection of the Labour party for the direction of investment, of which there was more than a hint in the speech of the hon. Member for Thurrock (Dr. McDonald).
However, the political arguments point rather powerfully in the other direction. I do not believe that the public would accept a proposed takeover of one of our clearing banks by a foreign bank. We in this country have an amiable idiosyncrasy: we like bankers. In the United States, the bank robbers — Jesse James, Bonnie and Clyde—are the goodies; the bankers are the baddies. But we in Britain rather like bankers, and tend to say, "Please don't shoot the banker." Any political trouble that might arise from, for instance, a proposal that parts of British Leyland should be taken over by General Motors or DAF would be a vicarage tea party compared with the force of public anxiety and disapproval over an attempt by a foreign bank to take over one of our clearing banks.
The Government of the day would be rather hapless politically if their powers were not clear-cut to resolve such a situation. I should therefore be grateful if my hon. Friend the Economic Secretary would elucidate the position following the enactment of the legislation.
Will a notice of objection such as is adumbrated in new clause 2 amount to a veto by the Government, or by the Bank of England acting on the Government's behalf? Is it inconceivable that the Government's view might differ from that of the Bank of England? If a notice of objection is not a veto, what other powers have the Government? Are their powers under the Fair Trading Act and the possibility of reference to the Monopolies and Mergers Commission adequate to enable the Government, if they felt that it was in the public interest, to prevent an outright takeover? Would the competent Minister be entitled to refer a bid to the MMC if the Director-General of Fair Trading had not advised him to do so? Is he certain that the director-general would advise him to do so?

The question of monopoly might arise. One could imagine — there is a touch of fantasy in this — the Industrial Bank of Japan, with a capitalisation of £29 billion, or the Sumitomo bank, with a capitalisation of £32 billion, deciding that it would have the Midland bank for breakfast at a capitalisation of £1·5 billion, Lloyds bank for elevenses at £2·6 billion, the National Westminster bank for a slightly heavier lunch at £4·5 billion, and Barclays bank for a relatively light supper at £3·7 billion. The total capitalisation of the four British clearing banks is £12·3 billion, only just over one third of the capitalisation of the Sumitomo bank.
That is a fantastic situation. The monopoly question would fairly and squarely arise and we could deal with it, but the question of monopoly would not so definitely arise if piecemeal attempts were made to take over British banks. For example, Deutschebank, Dresdnerbank, Mitsubishi bank and Fuji bank might each decide to help itself to a clearer. What does my hon. Friend think the position would be in relation to the Monopolies and Mergers Commission if such a development started to unfold?
If a bid were referred to the commission, the process of scrutiny would be lengthy and subjective. There have been phases when the criteria by which the MMC has to work have been less than perfectly clear and we cannot be absolutely sure that the result of a reference would be rejection. One imagines that that would be the result, but we cannot be sure.
Let me also ask my hon. Friend about the reciprocity provision in new clause 2. It seems to me that, as other hon. Members have suggested, that factor would not be sufficient in every foreseeable case to enable the Government to prevent a takeover. One can imagine a takeover bid occurring at a time when the markets in other countries, such as Japan and Germany, had been made more effectively open. I am happy to say that, thanks to the strenuous and skilful efforts of my right hon. and hon. Friends at the Department of Trade and Industry and my hon. Friend the Economic Secretary, we are making good progress towards that liberalisation. Therefore, the reciprocity factor might be irrelevant. It seems to me that the "fit and proper" consideration might also be irrelevant. How can we realistically say that the Deutschebank and the Sumitomo bank are not fit and proper to run banking businesses in this country? If we consider their financial capacity and the general standards by which they run their business, they are.
My hon. Friend the Member for Chichester (Mr. Nelson) referred to the Industry Act that was passed by the previous Labour Government. There is a view that that Act provides powers to enable the Government to prevent or veto a takeover without reference to the MMC. However, there is another view — that, since those powers have never in fact been used in more than 10 years, they have effectively ceased to be current and valid. What is my hon. Friend's appreciation of the Government's powers under the Industry Act?
My questions in sum are these. Will the Government have the power to act directly to prevent a takeover that they do not consider to be in the national interest? If not, why are they content to rest on the existing legislation, plus this new legislation?

Mr. Eric Forth: I come to this stage of the debate with all the trepidation and diffidence


of someone who has not participated in the Committee stage of such a Bill, with all its technicalities. I want to express a view along the lines expressed by my hon. Friend the Member for Stratford-on-Avon (Mr. Howarth), but in a slightly different direction. I have always believed, as he does, in free trade as having been the base for the wealth that has been developed by the free world, this country and our friends and partners throughout the world. I recognise also the increasing role that the financial sector is playing in the wealth-creating process, and not just in this country or in the European Community where we are trying to persuade our partners of the virtues of the free movement of capital, as well as of goods and people. We have persistently tried to preach to them how openness in capital markets will be of the greatest benefit to all members of the Community, and also the world's financial markets.
It is against that background that we must look at the basic questions raised during the debate about the balance to be struck — as mentioned by my hon. Friend the Member for Harwich (Sir J. Ridsdale) — between the national interest and the benefits of the free movements as we have perceived them in the past and as we hope to enjoy even more in the future.
Like my hon. Friend the Member for Stratford-onAvon, I ask the Economic Secretary to explain the role that he envisages that the Financial Services Act 1986 might play through some parts of its provisions, or alternatively the Fair Trading Act, both of which may have a role to play in any assessment either in reciprocity or public interest provision, especially when we are discussing an overseas bid or an attempted takeover of a crucial part of our banking sector. That could equally apply to one that is strictly domestic.
Therefore, the question arises whether, in view of the measures available under the present legislation, we want to go yet further in a Bill that is as important as this, with its role in the financial sector, in signalling yet a further move in a more protective or inward-looking direction. That must be a crucial consideration. While we look to the City and the financial sector to play an increasingly important role in the development of a worldwide financial sector, would it be wise or make sense for us to signal in this Bill that we want to start looking ever more inwardly, and that somehow we are afraid of what it involved in the financial sector in terms of give and take?
Much has been said about the Japanese, but we should also bear in mind the Americans whose role is every bit as crucial as that of the Japanese. We are all aware of the increasing tendency for protectionist arguments to develop in the USA. Great strides have been made in opening our financial and economic markets in the past and the benefits that we have gained from them show us how important it is not to allow even our friends in the USA to use anything that we do here to develop their protectionist arguments and potentially to damage the development of the financial sector in this country, the United States, and beyond. From all the speeches made so far in the debate, that appears to be the key consideration.
6.15 pm
We look to the Economic Secretary to reassure us about what is already on the statute book to help us to take the necessary steps for the future. My predilection is for a free market and a free and open approach rather than to introduce unnecessary additional measures that involve

vague concepts of the national interest, and that could be brought in unnecessarily to counter the markets. I hope that my hon. Friend can give us those reassurances because I do not want to support amendment No. 13. I am sure that he will find it easy to reassure the House on those points so that we do not find it necessary to support amendment No. 13.

Mr. Leigh: I wish to speak briefly in support of new clauses 2, 3 and 4. As my hon. Friend the Member for Chichester (Mr. Nelson) said, reciprocity is of great interest and importance. However, as my hon. Friend the Member for Harwich (Sir J. Ridsdale) said, it is also important that we should consider it in a balanced way. My hon. Friend the Economic Secretary has proposed a compromise. I do not think that the blunt instrument of the Financial Services Act 1986 will make much sense in banking terms. The provision that my hon. Friend outlined of blocking a freeze on voting rights should deal with the problem.
As my hon. Friend the Member for Harwich said, the new clause is a compromise that we should accept. The fact that notice must be given at a 5 per cent. shareholding will ensure that a shadow will be cast back from the 15 per cent. limit. That will give my hon. Friend the Economic Secretary a chance to step in in the case of unsavoury shareholders. Therefore, in terms of reciprocity and unsavoury shareholders, we are striking the right balance.
I am concerned about amendment No. 13. The hon. Member for Ipswich (Mr. Weetch) has put forward an attractive argument. He always argues his case moderately and sensibly. He suggested that, as clearing banks were important to the economy, there should be a fallback clause. Indeed, one Opposition Member said that it was simply a ring fence.
As I said in my intervention in the speech of the hon. Member for Stockton, South (Mr. Wrigglesworth), who did not answer my point, perceptions are important. My hon. Friend the Member for Mid-Worcestershire (Mr. Forth) said that the City of London relies on perceptions and on its history as a centre of free trade and financial institutions. If we were to accept amendment No. 13, we would damage those perceptions. Again, as my hon. Friend the Member for Mid-Worcestershire said, we should be worried about the protectionist instincts in the United States of America. Our banks have as much access to the American financial market as the American banks, but we should always be wary of the spectre of American protectionism. We should consider it in terms of balance and accept that what happened with the proposed takeover of the Royal Bank of Scotland, where the Monopolies and Mergers Commission stepped in under the Financial Services Act, is a sufficient safeguard.
The Opposition argue that banks are crucial to the economy. It is precisely because they are so crucial that there is no way that the Secretary of State for Trade and Industry would not refer such matters to the Monopolies and Mergers Commission. I have no doubt that there would be a similar result if there were a proposal from a Japanese bank. All in all, this is a fair compromise and we should accept my hon. Friend's case.

Mr. Tim Yeo: I join in the general welcome given to new clause 2. Reciprocity is an important principle for financial markets, particularly when we discuss the markets in this country that have had open


access to participants not only from this country, but from abroad. There is nothing protectionist about enshrining the principle of reciprocity in our legislation. We seek to break down barriers put up in other markets. When the Japanese and Americans give British players in these markets the same rights as we give them, by all means let us look at the Bill and the Financial Services Act 1986 and ask whether we need to amend or open them further. At the moment, by putting reciprocity in it, we are going a long way to removing protectionism. It is quite the reverse to suggest that there is anything protectionist about the principle of reciprocity in our financial markets and the legislation that governs them. I welcome new clause 2.
How does my hon. Friend see this legislation working in practice? I have some anxiety about how the principle of reciprocity will be tested. My hon. Friend the Member for Stratford-on-Avon (Mr. Howarth) produced some striking figures. He quoted the total capitalisation of the four British clearing banks as being little over one third of that of the Japanese bank, the Sumitomo bank. That is the position at present. With fluctuations in exchange rates, volatility in exchange markets and the fact that exchange rate movements tend to be overdone, at some time—particularly in the unlikely event of there being the whiff of a threat of a change of Government — the pound might fall dramatically, and this might open up an opportunity for an opportunist approach by a Japanese bank. Far from costing one third of their capitalisation to swallow up all four of the British clearing banks, it might cost a fifth, a tenth or a twentieth. Because of currency movements as well as other factors, British banks might be vulnerable.
In those circumstances, who can conceive of a British institution being able to take over a Japanese bank that is quoted at a price 10 or 20 times greater than the size of the British institution? How could it do it?

Mr. Christopher Hawkins (High Peak): As someone who did not serve on the Committee, I share my hon. Friend's great concern about what reciprocity means in practice. America might say, "Yes, you can buy some banks in America," but it has 14,000 banks. I do not believe for one moment that the Americans would let us buy one third of their banking system. An American bank could buy NatWest, and that would be one third of our banking system gone in one hit. The Monopolies and Mergers Commission would not help. It would argue that another bank buying a British bank might ginger up competition, not reduce it, because it would not be a reduction in the number of banks in Britain.

Mr. Yeo: The differences between our banking system and the American banking system are far-reaching and fundamental. Not only could a British bank not buy up one third of the American banking system, but an American bank could not do so, either, under their present legislation. They have problems in reaching any comparability with us.
I ask the Minister to address the matter of reciprocity. It looks fine to me in theory, but, in practice, will it mean anything? If a British institution genuinely wanted to buy a Japanese bank, if it were ever in a position to do so, would it be able to do so? There is a danger that reciprocity is still a one-way access for foreign institutions to use their

hard currency assets to acquire British institutions at perhaps moments that are favourable to them but are unfavourable to us.
My hon. Friend the Member for Eastbourne (Mr. Gow) made an important point. We must be fair to Opposition Members. After all, politically they are in such a parlous condition at the moment that it is incumbent upon us to be fair to them. Amendment No. 13 does not mention foreign takeovers. It is designed to block any takeover that we regard as being against the national interest.
I put to my hon. Friend the Minister a hypothetical but not totally inconceivable situation. Under the existing legislation, the Monopolies and Mergers Commission, the other powers in the Bill and so on, will it be possible to deal with the situation that I am about to describe? Let us suppose that Mr. Ivan Boesky, with all the substantial assets that he acquired by one means or another over the past few years, decides to go into the British banking business by acquiring a major British bank. To do so, he does not wish to become the chairman or a director of the bank, but he produces a few experienced bankers who will operate through a new business form for the purpose of acquiring, say, Barclays bank. Let us suppose that there is enough equity base in the new company so that there is no question of any prudential factor arising and that the whole operation is adequately financed.
With existing powers, whether under this Bill or under some other legislation, will the Government be able to block a takeover of that sort which they regard as undersirable, not because it involves any unnecessary financial risk on the part of the institution, not because there is inadequate management—the Barclays management will still be there, backed by additional management perhaps from the United States—but merely because the ultimate shareholder is someone whom we may think is not wholly suitable to control a British institution? Would the powers in amendment No. 13 help in that respect? I should be grateful if my hon. Friend would address that point. I shall listen with great interest to his reply.

Mr. John Butterfill: Many hon. Members who served on the Standing Committee will no doubt remember the arguments that were deployed in relation to a matter similar to that raised by amendment No. 13. We should reflect on the arguments that were deployed then. One of my objections to amendment No. 13 is that it imports the general and rather vague notion of the national interest. The problem with that general and rather vague notion is that the definition of "national interest" can vary from time to time, according to the political complexion of the Government of the time. My hon. Friend the Member for Eastbourne (Mr. Gow) did us a great service by pointing out that, under the terms of amendment No. 13, this could apply equally to British and overseas companies. The vague notion, which can be used to block all sorts of proposed mergers or takeovers in the vague concept of the national interest, is a dangerous road for us to go down.
I support the concept of reciprocity. I supported it when I was a member of the Standing Committee that considered the Bill that became the Financial Services Act 1986 and again when the Standing Committee considered this Bill. I pointed out that we did not need to go any further than invoking clause 183 of the Financial Services Act to achieve our objectives. I am interested to see that


my hon. Friend, in drafting clause 2, has provided specific machinery for the use of the Financial Services Act. That will be helpful. Had we relied on the Act as it stood, it would have required the Treasury to give notice directly to a potential acquirer, whereas, through this Bill, we propose to enable the Bank of England to give directions. It is therefore helpful that the amendment quite clearly sets out the procedure to be followed in such circumstances.
My hon. Friend will no doubt remember that, in Committee, I asked him whether he considered that somebody who financed a series of acquisitions by separate people might be caught under this clause. He was kind enough to write to me to say that he considered that, if a number of people acted in concert, that circumstance would be caught. Will the Minister confirm that the word "associates" in subsection (2) of new clause 4 includes somebody who financed a series of transactions and that, therefore, it will have the effect of preventing such transactions?

Sir Brandon Rhys Williams: I support my hon. Friend the Member for Stratford-on-Avon (Mr. Howarth) who drew attention to the embarrassment of the Bank of England in the event of a deposit-taking institution being invaded by someone whom the bank did not consider fit and proper acquiring shares. I hope that my hon. Friend the Economic Secretary to the Treasury will have been impressed by my hon. Friend's remarks, which I felt were convincing. It would be wrong that the bank should be frustrated until such a person had actually acquired a 15 per cent. holding. I hope that, at a later stage of the Bill, the Economic Secretary will do something to it which makes it possible for the bank to act more strongly in such a case.

Mr. Ian Stewart: A very large number of questions have been asked during the debate. Rather than go through them individually, I think that it would be better if I were to group them into three subjects: substantial and controlling shareholders, reciprocity, and the national interest powers. By doing so, I shall be able to answer all the points of substance that have been raised. I say that with one exception. My hon. Friend the Member for Stafford (Mr. Cash) referred to amendment No. 12 and suggested that there should be a reference to "depositors or potential depositors" instead of "depositors and potential depositors". I am grateful to him for mentioning that point.
6.30 pm
Although elsewhere in the Bill the correct expression is indeed "depositors or potential depositors", the context here requires "depositors and potential depositors", for this reason. The provision is saying that the bank may issue a notice of objection, unless it is satisfied that both existing and potential depositors are safe. If the amendment were accepted, the provision might prevent the Bank of England from acting in cases where only one class of depositor was threatened. This particular case is the other way round; it is a kind of double negative. I hope that I have answered my hon. Friend's point.
The first of the three main subjects to which I referred was substantial and controlling shareholders: substantial shareholders with 5 per cent. or more of the shareholding of a bank and controlling shareholders with 15 per cent. or more of its capital. The new clauses provide two points at which the supervisor becomes interested in such

holdings. First, at 5 per cent. the shareholder has to give notice to the supervisor that he has such a holding and thereafter he has to provide information to the supervisor and respond to his inquiries. At the 15 per cent. level he has to satisfy the supervisor that he is fit and proper in the context of a holding of that amount, which can be described as a controlling shareholding in a bank.
My hon. Friend the Member for Stafford, supported by my hon. Friend the Member for Kensington (Sir B. Rhys Williams), expressed anxiety about the position of those who hold shareholdings of 5 per cent. or more but who do not hold shareholdings of 15 per cent. or more. The hon. Member for Great Grimsby (Mr. Mitchell) referred me to amendment No. 59, which suggests the substitution of 10 per cent. for 15 per cent., and asked me whether it was relevant to these provisions. The hon. Gentleman is quite right.
I suggested in Committee, and I am now bringing forward on Report, provisions that do not change the 15 per cent. test — the original provision in the Bill — by setting it at 10 per cent., but I meet the point that was raised in Committee, that anxiety could arise about holdings of less than 15 per cent., by two means. First, I have introduced the new 5 per cent. test. Secondly, I have strengthened the 15 per cent. test so that it is not just a single hurdle to be safely negotiated and then forgotten but a continuing requirement for responsible behaviour by existing shareholders. Taken together, I believe that the two provisions amount to adequate protection against undesirable shareholders.
My hon. Friend the Member for Stafford said that there are no sanctions against someone who does not seem to be suitable. However, the problem is that 5 per cent. —and perhaps a figure above 5 per cent.—is not a level at which a very great deal of influence can be exercised over the conduct of a bank. In fact, 5 per cent. is a common level of institutional shareholding in a bank, and it carries with it no implication of involvement in the management of the bank.
However, the combination of the 5 per cent. and 15 per cent. triggers makes accountable to the Bank of England anyone who has acquired 5 per cent. If anybody takes his shareholding up to 15 per cent., he will have had to establish in the meanwhile that he has behaved satisfactorily and is able to pass the 15 per cent. test. If he had not behaved in such a way while he was a 5 per cent. or 10 per cent. shareholder, if he did not responsibly answer questions and inquiries put to him by the Bank of England and if, in other ways, he did not show that he was suitable to be a controlling shareholder, he would find it extremely difficult and probably impossible to surmount the 15 per cent. test. That is why the combination of the 15 per cent. and the 5 per cent. tests will be effective.
After I had announced in Committee the two new provisions, there was a case in the market. A substantial shareholding had been built up in a British bank and the reaction of the market was to make a very significant adjustment in the price of the shares in that bank, which suggested that the market regarded these proposals as of significance.
My hon. Friend the Member for Suffolk, South (Mr. Yeo) asked what would happen if a particularly unsavoury character came along, and I think that he quoted the name of a person whom he might put into that category. He asked whether the provisions of the Bill, including the Government's new clauses, would enable his control to be


frustrated. The answer is yes. If he were a wide boy, on a grand scale, he would never pass the fit and proper test. Only narrow boys would be able to pass the fit and proper test. Even if they appear to be narrow boys at the time they acquire their 15 per cent. but subsequently are shown to be wide boys, under the new provisions that I am introducing they would be subject to the blocking provisions. On all those counts, my hon. Friend can be satisfied that his concern will be met.
During the last hour or two the House has been considerably occupied with the question of reciprocity. I agree with the sentiments of a number of my hon. Friends that the reputation and success of the London financial markets have been based on open trading and that we do not want to introduce protectionist sentiments into our legislation, if they are unnecessary.
In a brief but, I thought, telling intervention my hon. Friend the Member for Harwich (Sir J. Ridsdale) said that he felt that in the case of Japan there is insufficient reciprocity and that it is very difficult for British or other foreign companies to gain adequate access to Japanese markets. Should the reciprocity provisions of the Bill or of the Financial Services Act 1986 be called into play if there were an approach by a Japanese company, it would be very difficult for me to disagree with his analysis. I shall resist the temptation to make a world tour and say, country by country, where I think that such problems might arise, but there has been anxiety about Japan and the point is very well taken.
The fundamental point about reciprocity that I should like to emphasise is that the provisions of the Financial Services Act and of this Bill are designed to open up markets overseas, not to put up the shutters around London. It is not only in the circumstances where a United Kingdom bank could not buy a Japanese bank that the provisions might be triggered; it is a much more general question of access to the provision of financial services. That applies to banking, insurance, investment and other matters. If hon. Members study the way in which new clause 2 is phrased they will see that it states:
overseas countries which do not afford reciprocal facilities for financial business".
Therefore, we have gone far beyond the question of takeovers.
I felt it necessary to strengthen, or rather adapt, the reciprocity provisions contained in the Financial Services Act 1986 because, whereas the threat of withdrawal of authorisation may be an appropriate sanction in the case of an investment or insurance business, in the case of banks that rely on taking deposits in the market from day to day, the withdrawal of authorisation may cause great difficulties for depositors. Therefore, the threat of that withdrawal of authorisation would not be a credible deterrent.
The reciprocity powers, should they ever be put into practice, must be workable. I hope that they will not be brought into play. I hope that other countries, encouraged by our example, will open up their markets to our banks and other foreign banks and financial companies. Other countries may discover, in the same way as we have discovered, that that action will create a thriving market, which is of great advantage, as indeed it has been for the City of London.
I do not believe that others should be entitled to become predators of our banking system and at the same time fail to offer us equivalent access to their markets. That is the essence of the case on reciprocity.
Amendment No. 13, moved by the hon. Member for Thurrock (Dr. McDonald) raised an important question about national interest. The Bill does not contain general powers to object to bank shareholdings on the grounds of national interest. That matter is the responsibility of the Monopolies and Mergers Commission. The Government's policy in applying the powers contained in the Fair Trading Act 1973 takes full account of the public interest. Any projected foreign takeover of a British bank will continue to be subject to that policy.
I was asked what would happen as a result of the review of the Monopolies and Mergers Commission, carried out in the general review of competition policy, which is being conducted by the Department of Trade and Industry. I expressed the Committee's concern to my right hon. Friend the Secretary of State and he has confirmed that there is no reason why that review will result in any weakening of the broad public interest criterion contained in the Fair Trading Act.
I believe that we have an effective system contained in the Monopolies and Mergers Commission and that that system is the best way to deal with the question of public interest or national interest in the case of banks or any other sector. One of my hon. Friends said that if banking is a crucial sector—as Opposition Members and others have said—by definition, if an approach was made to one of our major banks, it would be referred to the Monopolies and Mergers Commission. I believe that it is inevitable that, if an approach was made to one of the high street banks, it would be referred to the Commission. I have no doubt that similar factors would be adduced in such a review as in the case of the Royal Bank of Scotland.
I believe that the anxieties that have been expressed on that score are not well-founded. Therefore, I hope that the House will accept the Government new clauses and the related amendments, but will object to amendment No. 13.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 3

OBJECTION TO EXISTING SHAREHOLDER CONTROLLER

'(1) Where it appears to the Bank that a person who is a shareholder controller of any description of an authorised institution incorporated in the United Kingdom is not or is no longer a fit and proper person to be such a controller of the institution it may serve him with a written notice of objection to his being such a controller of the institution.
(2) Before serving a notice of objection under this section the Bank shall serve the person concerned with a preliminary written notice stating that the Bank is considering the service on that person of a notice of objection; and that notice shall—

(a) subject to subsection (5) below, specify the reasons for which it appears to the Bank that the person in question is not or is no longer a fit and proper person as mentioned in subsection (1); and
(b) give particulars of the rights conferred by subsection (3) below.
(3) A person served with a notice under subsection (2) above may, within the period of one month beginning with the day on which the notice is served, make written representations to the Bank; and where such representations are made the Bank shall take them into account in deciding whether to serve a notice of objection.
(4) A notice of objection under this section shall—



(a) subject to subsection (5) below, specify the reasons for which it appears to the Bank that the person in question is not or is no longer a fit and proper person as mentioned in subsection (1) above; and
(b) give particulars of the rights conferred by section 25 below.

(5) Subsection (2)(a) and (4)(a) above shall not require the Bank to specify any reason which would in its opinion involve the disclosure of confidential information the disclosure of which would be prejudicial to a third party.'. —[Mr. Ian Stewart.]

Brought up, read the First and Second time, and added to the Bill.

New Clause 4

NOTIFICATION OF ACQUISITION OF SIGNIFICANT SHAREHOLDING

'(1) A person who becomes a significant shareholder in relation to an authorised institution shall within seven days give written notice of that fact to the Bank.
(2) For the purposes of this section "a significant shareholder", in relation to an institution, means a person who, either alone or with any associate or associates, is entitled to exercise, or control the excise of, 5 per cent. or more but less than 15 per cent. of the voting power at any general meeting of the institution or of another institution of which it is a subsidiary.
(3) Subject to subsection (4) below, any person who contravenes subsection (1) above shall be guilty of an offence.
(4) A person shall not be guilty of an offence under subsection (3) above if he shows that he did not know of the acts or circumstances by virtue of which he became a significant shareholder in relation to the institution; but where any person becomes such a shareholder without such knowledge and subsequently becomes aware of the fact that he has become such a shareholder he shall be guilty of an offence unless he gives the Bank written notice of the fact that he has become such a shareholder within fourteen days of becoming aware of that fact.
(5) A person guilty of an offence under this section shall be liable on summary conviction to a fine not exceeding the fifth level on the standard scale.'.—[Mr. Ian Stewart.]

Brought up, read the First and Second time, and added to the Bill.

Mr. Norman Hogg: On a point of order, Mr. Deputy Speaker. I appreciate that the hon. Member for Chichester (Mr. Nelson) may wish to get on to Government amendment No. 4, but the Opposition had the clear understanding that we had an agreement that amendment No. 13 would be taken at this point in the proceedings. We understood that we would not proceed to Government amendments Nos. 4, 5 and so on until such time as the Division had taken place and the Question on amendent No. 13 determined.
Apparently, something has gone wrong and I do not understand. [Interruption.] I am sorry that Conservative Members find it amusing that, when we reach agreement on how to get on with business somehow or other, it does not matter and that the Opposition's rights in such a case are a laughing matter. If that is the case, Conservative Members can laugh all night because that is how long it will take to get through the rest of the Bill.
I hope that you, Mr. Deputy Speaker, can facilitate us in achieving a vote now so that a Division on amendment No. 13 may take place and we can therefore proceed to complete consideration of the Bill.

Mr. Deputy Speaker: I am sorry that I cannot help the hon. Gentleman. It is possible to take things in a different

order only if an Order of the House to that effect is taken at the beginning of proceedings. There is no such Order of the House so I am afraid that I am bound by the rules.
I understand that the Opposition wish to vote on amendment No. 13. They can certainly do so, but it must be taken in the order in which it appears on the Amendment Paper. In other words, we must now dispose of Government amendment No. 4 and Opposition amendment No. 5 and consequential amendments. We shall then come to amendment No. 13.

Clause 2

THE BOARD OF BANKING SUPERVISION

Amendment proposed: No. 4, in page 2, line 15, leave out from '(b)' to 'being' in Hine 17 and insert
'six independent members, that is to say, members appointed jointly by the Chancellor of the Exchequer and the Governor,'.—[Mr. Ian Stewart.]

Mr. Deputy Speaker: With Government amendment No. 4 it will be convenient to take Government amendment No. 6.

Mr. Nelson: This is the only opportunity that we shall have to discuss the amendments relating to the establishment of the Board or Banking Supervision under clause 2. I make no apology to the House for taking the opportunity to do so because it is at the absolute heart of the Bill.
One of the major reasons for introducing the Bill were the problems that resulted from the Johnson Matthey Bank collapse. At the time it was suggested that some of the shortcomings of the Bank of England could have been avoided if there had been some impartial, objective advice and a proper supervisory board — or, as Opposition Members would have it, a commission—established that would be more incisive about some of those problems.
The amendments are the result of discussion during Committee and deserve to be discussed on Report. As regards amendment No. 4 I welcome the fact that my hon. Friend the Economic Secretary has decided to bring forward proposals to increase the number of independent members. That will further enhance the weight and power of the independent element of the Board of Banking Supervision as against the ex officio membership of the Governor, the Deputy Governor and the director responsible for banking supervision.
It is important that we take this opportunity to seek assurances from my hon. Friend that when the Bill is enacted, the banking sector will not return to the initial system and business as usual. The Board of Banking Supervision is a grand title but it is little more than an advisory body because it has few teeth. Will my hon. Friend assure us that it will be, not a cosy luncheon club, but an effective watchdog body over executive decisions and policy judgments of the Governor and the Bank of England?
I should also welcome a brief comment on the sort of relationships that the board will have with the Governor and the division within the bank responsible for banking supervision.
Amendment No. 6 gives the independent members certain powers to place before the Chancellor of the Exchequer their views, presumably, about the broad range of matters that they may consider. Will my hon. Friend


give some idea of the circumstances in which he envisages such a report being made to the Chancellor of the Exchequer? That is clearly a welcome departure because it introduces some political influence. Would it, for example, enable the independent element of banking supervision to report to the Chancellor of the Exchequer if it felt that a matter of political significance in banking supervision should be drawn to his attention? Or would matters of reference of a more technical nature be exclusively for the Governor of the Bank? If it were felt, for example, that the amount of credit extended through credit card transactions was becoming excessive and that certain action needed to be taken, which if not taken would threaten the banking sector, could the independent element of the Board of Banking Supervision draw that to the attention of the Chancellor and, thereby, raise the political profile?
Does this measure mark a shift of power from the Bank to the Chancellor? I suspect that it in no way undermines what the Economic Secretary wishes to see as the firm control and executive power of the Governor. However, clearly circumstances are envisaged in which such a reference will be made. As the powers of the board, particularly of the independent element, are matters on which the House sought reassurance on Second Reading and in Committee, I would be grateful for my hon. Friend's comments.

Mr. Stewart: The amendments to clause 2, which are embodied in amendments Nos. 4 and 6, have three purposes. First, the number of independent members is increased to six, so that in future there will be a total membership of nine and twice as many independent members as ex officio members. Secondly, the independent members are to be appointed, not by the Governor with the approval of the Chancellor, but by the Chancellor and the Governor jointly. Thirdly, there will be a specific statutory entitlement of the independent members to place before the Chancellor their reasons for holding a different view from the ex officio members, if such comes about.
I have no reason to think that this will be a cosy system. It seems that the advisory functions of the independent members will greatly strengthen the system and will be of great value to the Bank of England. I am sure that the Bank will not lightly disregard the comments of the independent members either about specific matters of supervision or more general questions, such as those which my hon. Friend the Member for Chichester (Mr. Nelson) mentioned. The independent members would need to pass on their opinion to the Chancellor only if there were a difference of view. Otherwise, if there was general anxiety in supervisory terms about, for example, the extension of credit, it would be dealt with in supervisory policy, about which the Governor would be in communicaton with my right hon. Friend the Chancellor.
The amendments respond to points made in Committee and they strengthen the role of the independent members. I hope that the House will welcome them on that basis.

Amendment agreed to.

Dr. McDonald: I beg to move amendment No. 5, in page 2, line 25, at end insert
'and to resign from the Board immediately on the commencement of an investigation by the Bank of England into a bank in which the independent member has a position of responsibility'.
In his reply to the hon. Member for Chichester (Mr. Nelson) the Minister said that he did not regard the Board of Banking Supervision as a club. In his reply to me I hope that he will accept the amendment because it will ensure that the Board of Banking Supervision is not a club.
The Minister will know that on 4 February the Standard Chartered bank asked the Bank of England to appoint inspectors into its affairs, one assumes as a result of the continued press rumours about what happened when the Lloyds bid was first made in April 1986,. Between April 1986 and July 1986 the Lloyds bid failed. Hon. Members will know that during that period several so-called white squires, including Mr. Khoo, assisted the Standard Chartered bank to fight the bid from Lloyds. The Minister will also know that the press recorded many allegations about loans that were offered to the National Bank of Brunei and to Mr. Khoo, who at that time owned 70 per cent. of that bank, before and shortly after the Lloyds bid failed. Obviously, we shall not know whether those allegations are true until the investigation is completed.

Mr. Gerald Howarth: I hope that the hon. Lady will tell the House that Standard Chartered invited the Bank of England to appoint inspectors from a position of strength and because it repudiates scurrilous reports in the press, some of which are now the subject of libel proceedings.

Dr. McDonald: I entirely understand the hon. Gentleman's anxieties because, as he states in the Register of Members' Interests, he is an employee of Standard Chartered. If he were listening carefully to what I said, he would have noted that I said that on 4 February Standard Chartered asked the Bank of England to appoint inspectors. I do not propose to assess the truth or falsity of those allegations; that is for the inspectors whom the Bank of England has now appointed. It would be useful to have the full report of that investigation made public, but we do not know whether that will be the case.
I tabled the amendment because I am disturbed to note that Mr. Peter Graham, deputy chairman of Standard Chartered bank, is also a member of the Board of Banking Supervision. I am in no way making personal allegations against him. I do not know what part he played during the Lloyds takeover bid, which is presumably another matter which, I hope, the inspectors will investigate. My point is simply that if the Board of Banking Supervision is not to be regarded as a cosy club the suggestion that is implied in my amendment should be followed. I understand that Mr. Graham has resigned, but that his resignation is due to take effect from May when he takes over from Lord Barber as chairman of Standard Chartered. It seems that he is still a member of the Board of Banking Supervision and was when Standard Chartered asked the Bank of England to appoint inspectors.
7 pm
In the interests of justice being seen to be done, in those circumstances it is important that a member of the Board of Banking Supervision should resign immediately. If that were the expected step for anyone in that position to take, it would not carry any implications that the allegations under investigation were either true or false. It would simply be an automatic step. It is an entirely proper step. The function of the Board of Banking Supervision is to advise the Bank of England on supervisory matters. It is


quite wrong that someone who has an interest in the outcome of a current investigation should remain on the board. I am not making any judgment about Mr. Graham; it is simply a procedural point in the interests of justice being seen to be done. If the Minister does not feel able to accept that amendment now, I hope that he will give an assurance that he will consider this matter and perhaps accpt it at a later stage.

Mr. Hugh Dykes: I need not cause alarm to anybody, not least the Minister or other collegues or Opposition Members. My intervention will be brief.
I am tempted by the argument of the hon. Member for Thurrock (Dr. McDonald) on this point. None the less, I have reluctantly come to the conclusion that it would be wrong to write a specific provision of this kind into a legislative instrument. Perhaps I am saying that at some risk, because it may be that the Minister will be tempted to accept the amendment. If he does not, I shall be interested in. and supportive of, his reasons. It would be difficult and unwelcome, in terms of any specific incidents in the future—we are all in favour of proper supervision — were a requirement to resign immediately to be specifically written into the legislation. That may seem to be at variance with other requirements in other parts of the Bill for specific legislation.
The act of resignation is difficult to write into a text of this kind. I shall be, as others may be, interested in the Minister's views. It might be that this could be encapsulated more appropriately not merely in the written convention of the behaviour of such a body, but in the standing orders or rules of procedure of the board in its career and constitution.

Mr. Ian Stewart: The point which the hon. Member for Thurrock (Dr. McDonald) has raised is a serious one. I agree with my hon. Friend the Member for Harrow, East (Mr. Dykes) that to build compulsory resignation powers into statute is a dangerous course to follow. The circumstances under which the amendment might operate could vary considerably and might include cases where the resignation of such a person would be wholly inappropriate. I shall elaborate on that briefly. An investigation does not establish any wrongdoing. Only if the investigation uncovered any wrongdoing would that difficulty apply. Indeed, an investigation into institution A might be undertaken in relation to a suspicion of wrongdoing in a different institution, institution B. It might be that, purely to obtain information, such steps would have to be taken.
The more important point is that it is standard practice in any body of this kind — I understand that it is intended that the board will operate in this way—that if there is any possibility of a conflict of interest the member concerned declares that interest and stands aside from the decision in that case. The board is not yet operating, so those rules are not in place. If a person were improperly to remain part of the discussion and process, it would be likely that that would be highly unsatisfactory in the view of the bank — a reasonable stance to take — and that person would then be removed from the Board of Banking Supervision under paragraph 2 of schedule 1, under which an independent member may be removed if he is unfit to discharge his functions as a member of the board. That description would fit anybody in a case of a conflict

interest where a member did not stand aside. On those grounds, it would not be right to accept the Opposition amendment.

Dr. McDonald: I was disappointed by the Minister's reply. He will have done nothing to allay the fears of the public, who will find it quite extraordinary that someone should remain as a member of the Board of Banking Supervision in an advisory capacity, and will obviously see the investigation papers. It is quite wrong that the powers that the Minister mentioned should not be used in those circumstances. The Minister knows full well that the Standard Chartered bank case is causing considerable anxiety with the public and the press. To allow the deputy chairman to remain in that position is quite wrong. It flies in the face of seeing justice being done.
I am surprised that the Minister did not give a more conciliatory reply and say that if automatic resignation were not the best way of dealing with the matter he would look into other ways of dealing with it.

Amendment agreed to.

Amendment made: No. 6, in page 2, line 32, at end insert
'and the independent members shall be entitled to place before the Chancellor the reasons for their advice.'.—[Mr. Ian Stewart.]

Clause 11

REVOCATION OF AUTHORISATION

Amendment made: No. 7, in page 7, line 44, after '22', insert
 ', (Objection by direction of the Treasury) or (Objection to existing shareholder controller).'—[Mr. Ian Stewart.]

Clause 21

NOTIFICATION

Amendments made: No. 8, in page 15, line 28, leave out
'shareholder controller or' and insert
'minority, majority or principal shareholder controller or an'.
No. 9, in page 15, line 30, leave out from 'Kingdom' to 'unless' in line 34.
No. 10, in page 15, line 41, leave out
'a written notice of objection under section 22 below'
and insert
'under section 22 or section (Objection by direction of the Treasury) below a written notice of objection to his becoming such a controller of the institution'.—[Mr. Ian Stewart.]

Clause 22

OBJECTION NOTICES

Amendment made: No. 11, in page 16, line 19, after 'objection', insert 'under this section'. — [Mr. Ian Stewart.]

Amendment proposed: No. 12, in page 16, line 23, leave out 'and' and insert 'or'.—[Dr. McDonald.]

Question put, That the amendment be made: —

The House divided: Ayes 86, Noes 246.

Division No. 97]
[7.10 pm


AYES


Ashdown, Paddy
Bidwell, Sydney


Atkinson, N. (Tottenham)
Blair, Anthony


Banks, Tony (Newham NW)
Boyes, Roland


Beckett, Mrs Margaret
Bray, Dr Jeremy


Benn, Rt Hon Tony
Brown, Hugh D. (Provan)


Bennett, A. (Dent'n &amp; Red'sh)
Buchan, Norman


Bermingham, Gerald
Campbell-Savours, Dale






Carlile, Alexander (Montg'y)
McNamara, Kevin


Carter-Jones, Lewis
McTaggart, Robert


Clay, Robert
McWilliam, John


Clelland, David Gordon
Marek, Dr John


Clwyd, Mrs Ann
Maxton, John


Cocks, Rt Hon M. (Bristol S)
Millan, Rt Hon Bruce


Cohen, Harry
Miller, Dr M. S. (E Kilbride)


Cox, Thomas (Tooting)
Mitchell, Austin (G't Grimsby)


Crowther, Stan
Morris, Rt Hon A. (W'shawe)


Deakins, Eric
Morris, Rt Hon J. (Aberavon)


Dewar, Donald
Nellist, David


Dixon, Donald
Park, George


Dormand, Jack
Pendry, Tom


Eadie, Alex
Pike, Peter


Fatchett, Derek
Prescott, John


Fields, T. (L'pool Broad Gn)
Radice, Giles


Fisher, Mark
Randall, Stuart


Flannery, Martin
Rees, Rt Hon M. (Leeds S)


Foster, Derek
Richardson, Ms Jo


Freeson, Rt Hon Reginald
Robinson, G. (Coventry NW)


Garrett, W. E.
Ross, Ernest (Dundee W)


Golding, Mrs Llin
Rowlands, Ted


Gould, Bryan
Shore, Rt Hon Peter


Hamilton, W. W. (Fife Central)
Skinner, Dennis


Hardy, Peter
Smith, C. (lsl'ton S &amp; F'bury)


Harrison, Rt Hon Walter
Smith, Rt Hon J. (M'ds E)


Hattersley, Rt Hon Roy
Snape, Peter


Hogg, N. (C'nauld &amp; Kilsyth)
Soley, Clive


Home Robertson, John
Spearing, Nigel


Howells, Geraint
Wainwright, R.


Hoyle, Douglas
Wallace, James


Kirkwood, Archy
Wareing, Robert


Leighton, Ronald
Weetch, Ken


Livsey, Richard
Wrigglesworth, Ian


Lloyd, Tony (Stretford)



McDonald, Dr Oonagh
Tellers for the Ayes:


McKay, Allen (Penistone)
Mr. Frank Haynes and


MacKenzie, Rt Hon Gregor
Mr. Lawrence Cunliffe.




NOES


Alexander, Richard
Carttiss, Michael


Amess, David
Cash, William


Ancram, Michael
Channon, Rt Hon Paul


Arnold, Tom
Chope, Christopher


Ashby, David
Clark, Hon A. (Plym'th S'n)


Atkins, Rt Hon Sir H.
Clarke, Rt Hon K. (Rushcliffe)


Atkinson, David (B'm'th E)
Cockeram, Eric


Baker, Rt Hon K. (Mole Vall'y)
Colvin, Michael


Baker, Nicholas (Dorset N)
Conway, Derek


Baldry, Tony
Coombs, Simon


Banks, Robert (Harrogate)
Cope, John


Batiste, Spencer
Cormack, Patrick


Bellingham, Henry
Corrie, John


Benyon, William
Cranborne, Viscount


Best, Keith
Critchley, Julian


Bitten, Rt Hon John
Currie, Mrs Edwina


Biggs-Davison, Sir John
Dickens, Geoffrey


Blackburn, John
Dorrell, Stephen


Blaker, Rt Hon Sir Peter
Douglas-Hamilton, Lord J.


Body, Sir Richard
Dykes, Hugh


Bottomley, Peter
Edwards, Rt Hon N. (P'broke)


Bottomley, Mrs Virginia
Eggar, Tim


Bowden, Gerald (Dulwich)
Evennett, David


Braine, Rt Hon Sir Bernard
Fallon, Michael


Brandon-Bravo, Martin
Favell, Anthony


Bright, Graham
Fenner, Dame Peggy


Brinton, Tim
Forman, Nigel


Brittan, Rt Hon Leon
Forsyth, Michael (Stirling)


Brooke, Hon Peter
Forth, Eric


Brown, M. (Brigg &amp; Cl'thpes)
Fowler, Rt Hon Norman


Browne, John
Franks, Cecil


Bruinvels, Peter
Fraser, Peter (Angus East)


Bryan, Sir Paul
Freeman, Roger


Buck, Sir Antony
Galley, Roy


Bulmer, Esmond
Gardiner, George (Reigate)


Burt, Alistair
Gardner, Sir Edward (Fylde)


Butler, Rt Hon Sir Adam
Garel-Jones, Tristan


Butterfill, John
Gilmour, Rt Hon Sir Ian


Carlisle, John (Luton N)
Glyn, Dr Alan


Carlisle, Kenneth (Lincoln)
Goodhart, Sir Philip





Gorst, John
Neale, Gerrard


Gow, Ian
Nelson, Anthony


Gower, Sir Raymond
Neubert, Michael


Greenway, Harry
Nicholls, Patrick


Gregory, Conal
Norris, Steven


Griffiths, Sir Eldon
Onslow, Cranley


Griffiths, Peter (Portsm'th N)
Osborn, Sir John


Ground, Patrick
Ottaway, Richard


Hamilton, Hon A. (Epsom)
Page, Sir John (Harrow W)


Hamilton, Neil (Tatton)
Page, Richard (Herts SW)


Hampson, Dr Keith
Pattie, Rt Hon Geoffrey


Hanley, Jeremy
Pawsey, James


Hargreaves, Kenneth
Pollock, Alexander


Harvey, Robert
Porter, Barry


Hawkins, C. (High Peak)
Portillo, Michael


Hawkins, Sir Paul (N'folk SW)
Powell, William (Corby)


Hawksley, Warren
Powley, John


Hayes, J.
Prentice, Rt Hon Reg


Hayward, Robert
Price, Sir David


Heathcoat-Amory, David
Raffan, Keith


Heddle, John
Rathbone, Tim


Henderson, Barry
Rees, Rt Hon Peter (Dover)


Heseltine, Rt Hon Michael
Rhodes James, Robert


Hickmet, Richard
Rhys Williams, Sir Brandon


Hill, James
Ridley, Rt Hon Nicholas


Hind, Kenneth
Ridsdale, Sir Julian


Hirst, Michael
Rippon, Rt Hon Geoffrey


Hogg, Hon Douglas (Gr'th'm)
Roe, Mrs Marion


Holt, Richard
Rossi, Sir Hugh


Hordern, Sir Peter
Rowe, Andrew


Howard, Michael
Ryder, Richard


Howarth, Alan (Stratf'd-on-A)
Sackville, Hon Thomas


Howarth, Gerald (Cannock)
Sainsbury, Hon Timothy


Howell, Ralph (Norfolk, N)
Shaw, Giles(Pudsey)


Hubbard-Miles, Peter
Shaw, Sir Michael (Scarb')


Hunt, David (Wirral W)
Shelton, William (Streatham)


Hunt, John (Ravensbourne)
Shepherd, Colin (Hereford)


Hunter, Andrew
Shepherd, Richard (Aldridge)


Irving, Charles
Sims, Roger


Jessel, Toby
Smith, Tim (Beaconsfield)


Jones, Gwilym (Cardiff N)
Soames, Hon Nicholas


Jones, Robert (Herts W)
Speller, Tony


Key, Robert
Spencer, Derek


King, Rt Hon Tom
Spicer, Michael (S Worcs)


Knight, Greg (Derby N)
Stanbrook, Ivor


Lamont, Rt Hon Norman
Stanley, Rt Hon John


Latham, Michael
Steen, Anthony


Lawrence, Ivan
Stern, Michael


Lawson, Rt Hon Nigel
Stevens, Lewis (Nuneaton)


Leigh, Edward (Gainsbor'gh)
Stewart, Allan (Eastwood)


Lennox-Boyd, Hon Mark
Stewart, Andrew (Sherwood)


Lewis, Sir Kenneth (Stamf'd)
Stewart, Ian (Hertf'dshire N)


Lightbown, David
Stradling Thomas, Sir John


Lloyd, Peter (Fareham)
Sumberg, David


Lord, Michael
Tapsell, Sir Peter


Luce, Rt Hon Richard
Taylor, John (Solihull)


Lyell, Nicholas
Taylor, Teddy (S'end E)


McCrindle, Robert
Temple-Morris, Peter


Macfarlane, Neil
Terlezki, Stefan


MacGregor, Rt Hon John
Thomas, Rt Hon Peter


MacKay, Andrew (Berkshire)
Thompson, Donald (Calder V)


MacKay, John (Argyll &amp; Bute)
Thompson, Patrick (N'ich N)


Maclean, David John
Thurnham, Peter


McLoughlin, Patrick
Townend, John (Bridlington)


McNair-Wilson, M. (N'bury)
Tracey, Richard


McQuarrie, Albert
Trippier, David


Major, John
Trotter, Neville


Malins, Humfrey
van Straubenzee, Sir W.


Malone, Gerald
Waddington, Rt Hon David


Maples, John
Wakeham, Rt Hon John


Marland, Paul
Walden, George


Maude, Hon Francis
Walker, Bill (T'side N)


Maxwell-Hyslop, Robin
Waller, Gary


Merchant, Piers
Wardle, C. (Bexhill)


Meyer, Sir Anthony
Warren, Kenneth


Mills, Sir Peter (West Devon)
Watson, John


Miscampbell, Norman
Wells, Bowen (Hertford)


Moore, Rt Hon John
Wheeler, John


Morrison, Hon C. (Devizes)
Whitfield, John


Murphy, Christopher
Wiggin, Jerry






Wilkinson, John
Younger, Rt Hon George


Winterton, Mrs Ann



Winterton, Nicholas
Tellers for the Noes:


Woodcock, Michael
Mr. Robert Boscawen and


Yeo, Tim
Mr. Tony Durant.


Young, Sir George (Acton)

Question accordingly negatived.

Amendments made: No. 14 in page 16, line 33, after 'objection', insert 'under this section'.
No. 16, in page 17 line 6, after 'objection', insert 'under this section'.—[Mr. Ian Stewart.]

Clause 23

CONTRAVENTIONS: OFFENCES

Amendments made: No. 17A, in page 17, line 43, after 'objection', insert—
'to his becoming a controller of that description'.
No. 18, in page 17, line 45, after 'with', insert 'such'.—[Mr. Ian Stewart.]

Clause 24

CONTRAVENTIONS: RESTRICTIONS ON AND SALE OF SHARES

Amendments made: No. 19 in page 18, line 17, after 'objection', insert —
'to his becoming a controller of that description'.
No. 20 in page 18, line 20, at end insert—
'; or (c) continues to be a shareholder controller of any description after being served under section (Objection toexisting shareholder controller) above with a notice of objection to his being a controller of that description.'.
No. 21, in page 19, line 8, leave out 'has become' and insert 'is'.
No. 22, in page 19, line 10, after 'became', insert 'such'.
No. 23, in page 19, line 12, leave out 'has become' and insert 'became'.—[Mr. Ian Stewart.]

Clause 25

RIGHTS OF APPEAL

Amendment made: No. 24, in page 19, line 43, after '22', insert—
'or (Objection to existing shareholder controller).—[Mr. Ian Stewart.]

Clause 36

POWER TO OBTAIN INFORMATION AND REQUIRE PRODUCTION OF DOCUMENTS

Mr. Jeremy Hanley: I beg to move amendment No. 26, in page 29, line 44, at end insert 'or related company of either or both of these'.

Mr. Deputy Speaker (Mr. Ernest Armstrong): With this it will be convenient to take the following amendments: No. 27 in page 29, line 45, at end insert 'or its related company'.
No. 28, in line 46, at end insert 'or its related company'.
No. 29, in line 50, leave out '50' and insert '20'.
No. 30, in line 50, at end insert—
'(e) a related company of that institution'.
No. 33, in clause 38, page 31, line 24, at end insert
'or related company of other or both of these'.
No. 34, in line 25, at end insert 'or its related company'.
No. 35, in line 26, at end insert 'or its related company'.
No. 36, in line 30, leave out '50' and insert '20'.
No. 37, in line 30 at end insert—
'(e) a related company of that institution'.
No. 60, in clause 103, at end insert
'"related company" has the same meaning as in Schedule 4 to the Companies Act 1985;'.

Mr. Hanley: I am grateful for the fact that all the amendments in my name have been grouped together.
Clause 36 grants the Bank of England power to obtain information and to require the production of documents from authorised institutions. Subsection (6) extends that power to enable the Bank of England to investigate holding companies or subsidiaries of authorised institutions and subsidiaries of holding companies. Paragraph (d) refers to bodies corporate in which a shareholder controller can exercise more than 50 per cent. of the voting power at a general meeting.
I should like to declare an interest as the parliamentary adviser to the Institute of Chartered Accountants in England and Wales. The institute strongly believes that it would be a great help to the Bank of England to extend its right to obtain information so that it covers related companies as defined in schedule 4 to the Companies Act 1985. In clause 36 this would be of help to the Bank of England, and in clause 38 to the person whom the Bank of England appoints as being
one or more competent persons to investigate and report to the Bank".
The matter was discussed in Committee by the hon. Member for Thurrock (Dr. McDonald) and by my hon. Friend the Member for Chichester (Mr. Nelson), and I pay tribute to my hon. Friend the Member for Chichester for moving, on my behalf, other amendments that were helpful in Committee.
The Institute of Chartered Accountants in England and Wales feels that this clause would be of benefit because a related company, which is defined in the Companies Act 1985 as
any body corporate … in which that company holds on a long-term basis a qualifying capital interest"—
that is, 20 per cent.—
for the purpose of securing a contribution to that company's own activities by the exercise of any control or influence arising from that interest".
would then be brought into account. Therefore the hank or the investigators could take into account a body which has an element of control over the authorised institution itself.
It seems strange to me and to the Institute of Chartered Accountants that, in granting this power to the Bank of England to obtain information, and in clause 38 granting the power to a qualified person to investigate on their behalf, the power is limited effectively to subsidiaries for holding companies. If, for instance, the investigation that was taking place revealed many transactions with a related company that would warrant further investigation, that could not be undertaken. Furthermore, as the investigators have to report back to the bank on
the nature, conduct or state of the institution's business or any particular aspect of it
and on matters of control, those companies in which there is an element of control—and this has been defined in the Companies Act 1985 as 20 per cent. — should be investigated.
I ask my hon. Friend the Economic Secretary to tell us why, in the Bill as drafted, the limit of 50 per cent. was put into clauses 36 and 38, and why a recognised organisation


such as a related company has been excluded. As it has an element of control over the bank that is being investigated, surely it should be available to the investigators for their detailed attention.

Mr. Ian Stewart: I understand the thinking behind the amendment of my hon. Friend the Member for Richmond and Barnes (Mr. Hanley). The powers in clauses 36 and 38 already cast a fairly wide net. It is inevitable that powers of that sort will have some limit. At present the provisions follow the basic relationship of parent company and subsidiary. On occasion, it might be necessary for the supervisor to obtain information concerning other related companies. That is usually achieved through the authorised institution itself. In principle, I am reluctant to over-extend the statutory powers in these provisions. However, without commitment, I will reflect further on this question in the light of what my hon. Friend has said, because it is a complicated and rather technical area.

Mr. Hanley: I am grateful for my hon. Friend's statement that he will continue to look at the matter. I repeat that in clause 38(1)(b) the competent person called upon to investigate and report to the bank must report on "the ownership or control of the institution".
As I have already said, a related company is defined as one that has a control or influence arising from the size of the shareholding and the activities of members of the board. Therefore, although I read with interest in the report of the Standing Committee that my hon. Friend the Minister said:
The amendment takes into account other bodies connected with him and extends the information-gathering power a bit too wide." — [Official Report, Standing Committee E, 22 January 1987; c. 221.]
I should have thought that "a bit too wide" would have been less than 20 per cent. However, between 20 and 50 per cent., as the hon. Member for Thurrock (Dr. McDonald) mentioned, would not perhaps be taking it too wide, but would be taking it down to the minimum level of effective control. Therefore, having heard what my hon. Friend has said, I hope that he will consider the matter again before the Bill proceeds to another place. In the meantime, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: No. 32, in page 30, line 27, at end insert—
'(9A) The Bank may exercise the powers conferred by subsections (1) and (3) above in relation to any person who is a significant shareholder of an authorised institution within the meaning of section (Notification of acquisition of significant shareholding) above if the Bank considers that the exercise of those powers is desirable in the interests of the depositors or potential depositors of that institution.'.—[Mr. Ian Stewart.]

Clause 38

INVESTIGATIONS ON BEHALF OF THE BANK

Amendment made: No. 38, in page 32, line 6, at end insert
'and anyone who is a significant shareholder in relation to that body within the meaning of section (Notification of acquisition of significant shareholding) above'.—[Mr. Ian Stewart.]

Clause 41

OBSTRUCTION OF INVESTIGATIONS

Mr. Ian Stewart: I beg to move amendment No. 39, in page 34, line 46, leave out subsection (2).

Mr. Deputy Speaker: With this, it will be convenient to take Government amendment No. 40.

Mr. Stewart: These amendments make an alteration to the maximum penalties under clause 41 to bring them into line with comparable penalties involving inherent dishonesty in other legislation.

Amendment agreed to.

Amendment made: No. 40, in page 34, line 50, leave out from 'section' to 'shall' in line 51.—[Mr. Ian Stewart.]

Clause 43

NOTIFICATION IN RESPECT OF AUDITORS

Mr. Ian Stewart: I beg to move amendment No. 41, in page 35, leave out lines 21 and 22 and insert—
'(b) gives notice to its shareholders of an ordinary resolution replacing an auditor at the expiration of his term of office with a different auditor;
or if a person ceases to be an auditor of the institution otherwise than in consequence of such a resolution.'.
This is a technical drafting improvement of an amendment moved by the hon. Member for Thurrock (Dr. McDonald) in Committee on 22 January, which I accepted on advice from parliamentary counsel. On advice from parliamentary counsel, it is felt better that paragraph (b) should be replaced by this amendment as it is not necessary for a company to give notice that an auditor will not be reappointed; rather, the company simply gives notice of the appointment of a different auditor.
The amendment clarifies the drafting and ensures that the intention of the hon. Lady's amendment is fully met.

Amendment agreed to.

Clause 44

COMMUNICATION BY AUDITOR ETC. WITH THE BANK

Dr. McDonald: I beg to move amendment No. 42, in page 36, line 29, leave out
'annulment in pursuance of a resolution of
and insert 'affirmative resolution in'.
The clause deals with communications by the auditor with the bank and in subsection (6) makes it clear that the Government will lay down regulations to make various provisions for the kind of information that auditors may be expected to give to the Bank of England. My purpose in tabling the amendment is to provide for these regulations to be scrutinised by both Houses and to allow for them to be voted down by either House of Parliament. The reason for this is that this issue needs examination. As the Minister knows, I have expressed doubts about the change in the role of auditors and the possible conflict of interest that they may have in reporting on the institution for which they act as auditors and in also being auditors and possibly fulfilling other functions in relation to that institution. Any regulations should be examined in that way by both Houses.

Mr. Cash: The amendment is very interesting, because it would change the procedure that is operated with regard


to the class of accountant referred to in subsection (5). The auditors are persons who would be qualified and referred to under section 389 of the Companies Act 1985, and who used to be recognised by the Department of Trade and Industry under sections 161(1)(a) and 161(1)(b) of the Companies Act 1948. Therein lies a tale. The classification of auditors under the 1948 Act raises the whole issue of the regulation of accountants in respect of which the eighth directive has been generated by the Commission and is open now for further consideration and consultation.
I am bound to say that the definition of an auditor is really left to the Secretary of State for Trade and Industry and there is no way in which I—argued this on the Financial Services Act 1986 and in relation to other matters—one can say with any degree of assurance that merely because a person is an auditor who has prescribed functions with regard to the audit of companies, it necessarily follows that he would be competent to have anything to say with any certainty about, for example, financial services. Those who are interested in following what I am saying — I am attempting to truncate the argument to some extent — may wish to refer to the proceedings in Committee on the Financial Services Bill. An important issue lies at the root of this matter.
7.30 pm
I hesitate to mention this, but my great-grandfather, William Cash, was a founding member of the Institute of Chartered Accountants and his son was president. Therefore, what I am about to say is with no disrespect to the institute, but I say it with feeling. I should declare an interest, because for many years I have been the legal adviser to the Society of Company and Commercial Accountants. The members of this society are accountants who would fall within the class of clause 44 (5). They have
satisfactory rules made or guidance issued by a professional body".
Therefore, I would be deeply concerned if there was any circumstance in which the members of a body which was not chartered—in other words not regarded as being on the inside track — would in any way be discriminated against simply because they were accountants from what some might incorrectly regard as the wrong stable.
The whole question of audit and auditors, of who is competent to be an accountant and who should give advice on tax questions, is very important to those who are giving the advice and to their clients. The Society of Company and Commercial Accountants has, I understand, through its membership, about 100,000 clients. The members of the society are small businesses and they advise small business men. There is nothing of which I am aware that has ever been raised to demonstrate to me that the society has anything but the highest standing, although it is not, at this juncture, a chartered body. Therefore, it is important that this provision is in the Bill and I congratulate the Government on the fact that it does appear in it; in other words, that it is not a provision confined to auditors, but applies to accountants. However, I have to issue the caveat that if any attempt were made to discriminate against the members of the Society of Company and Commercial Accountants in favour of chartered bodies in the way in which it has been done in the past with regard to the Companies Act legislation, it would be necessary to take appropriate action in relation to the regulations.
The question whether the regulations may be hybrid could arise out of whether they were subject to the

affirmative procedure or annulment. It so happens that this provision is currently cast on the basis of its being subject to the annulment procedure. 1 believe that there is a strong case—I would be interested to hear what my hon. Friend has to say about this—for saying that they should be subject to the affirmative procedure so that, if the issue of discrimination went to the House of Lords, which is where such questions are sorted out, there would be no doubt that the society would be in a position to petition on the ground that it was being discriminated against. Having been involved in the defence of the ship repairers in the Aircraft and Shipbuilding Industries Act 1977—I was the adviser on that case and appeared in the House of Lords in a professional capacity before I was elected to the House—I am well aware that there can be circumstances in which people may need to have a defence made available to them and the procedure that follows as a result of this being made subject to the affirmative procedure.
I ask my hon. Friend to consider, not only because justice should be seen to be done, but in anticipation of the Society of Company and Commercial Accountants being in a position to have available to it the procedures I have described, that this matter should be made subject to the affirmative procedure. I would be surprised if he were to say that he was not prepared to do that.
The credentials of the society are well known, and I have explained them. Discussions are taking place with Sir Kenneth Berrill over the position under the Securities and Investments Board and the documentation that he has just submitted to the Department of Trade and Industry. Indeed, I can inform my hon. Friend that the matter is also being raised with the Office of Fair Trading. It would be wrong for a society, which is perhaps small in number but none the less important in relation to its clients and its standing, to be given rough justice and unfair treatment simply because it does not fit neatly and conveniently into the packages provided through the auspices of the chartered bodies.
I know a little about this subject because I have been involved in advising on matters relating to audit and accountancy for nearly 15 years. I hope that my hon. Friend will listen carefully to what I have said and be good enough, in all justice, to enable the Society of Company and Commercial Accountants to have an assurance that there will be no discrimination against it or, alternatively, to have available to it the affirmative procedure so that it can petition in the House of Lords if it were to be a hybrid instrument.

Mr. Ian Stewart: The hon. Member for Thurrock (Dr. McDonald) has suggested that regulations under clause 44(6) should be subject to affirmative resolution instead of the negative resolution procedure. My hon. Friend the Member for Stafford (Mr. Cash) has given rather different grounds for suggesting the same thing. The regulations under clause 44(6) are reserve powers, only to be introduced if the conditions specified in clause 44(5) are not fulfilled; that is if satisfactory rules or guidance are not issued by the professional bodies concerned. However, the more I think about it, the more I am persuaded that there is merit in making such a change. Therefore, I am inclined to accept what the hon. Lady proposed in principle. Unfortunately, when the wording of the amendment was checked it was found to be technically deficient. Therefore, I am not able to accept it in substance as opposed to in


principle. However, in a fit of energy, I asked if it would be possible for parliamentary counsel to produce an amendment which would be satisfactory. I do not know whether the Chair would be willing to accept a manuscript amendment in substitution for amendment No. 42. which achieves precisely the effect wished for by hon. Members. If you were willing to accept that, Mr. Deputy Speaker, I have a copy in my hand and it might be for the convenience of the House if we were able to consider it.

Mr. Deputy Speaker: I cannot accept the amendment because Mr. Speaker accepts amendments. It has been submitted too late. I am sorry about that.

Mr. Stewart: I regret that my efforts to assist the House have not been successful, even on those practical grounds which I understand. I had decided that this change should be made and therefore the drafting of the amendment would have to occur at some stage. I will ensure that it is tabled in another place.

Dr. McDonald: In view of what the Minister said—and I thank him for his acceptance of the principle of this amendment — I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 57

PROTECTED DEPOSITS

Mr. Ian Stewart: I beg to move Government amendment No. 43, in page 44, line 17, leave out '£10,000' and insert '£20,000'.

Mr. Deputy Speaker: With this it will be convenient to take the following:
Amendment No. 44, in page 44, line 17, leave out '£10,000' and insert
'in full of £30,000, and then 90 per cent. of the balance between £30,000 and £50,000'.
Government amendment No. 45.

Mr. Stewart: These amendments increase the amounts of a protected deposit under banking legislation from £10,000 to £20,000. The figure for deposit protection under the Banking Act should be reviewed from time to time. Although such a change can be made at any time by statutory instrument, I am persuaded by the debate in Committee and by consideration of the case that the passage of a new Banking Bill offers a convenient occasion to do it. The change will give increased protection to depositors with banks. I hope that in that sense it will be welcomed by the House. I am also proposing to increase the limits on protective deposits with building societies to £20,000 at the same time.

Amendment agreed to.

Amendment made: No. 45, in page 44, line 29, leave out '£10,000. and insert '£20,000'.—[Mr. Ian Stewart.]

Clause 64

RESTRICTION ON USE OF BANKING NAMES

Mr. Ian Stewart: I beg to move amendment No. 46, in page 51, line 13, after 'denominated', insert 'wholly or partly'.

Mr. Deputy Speaker: With this it will be convenient to take Government amendments Nos. 47 and 65.

Mr. Stewart: Clause 64(2) refers to issued share capital which is denominated otherwise than in sterling. Clause 64(5) and paragraph 5 of schedule 3 contain similar references to capital being denominated otherwise than in sterling. As drafted, the Bill does not take account of the possibility that capital might be denominated partly or wholly in a foreign currency. These amendments are designed to remedy that.

Amendment agreed to.

Amendment made: No. 47, in page 51, line 43, after 'denominated', insert 'wholly or partly'. — [Mr. Ian Stewart.]

Clause 65

EXEMPTIONS FROM S. 64

Mr. Ian Stewart: I beg to move Government amendment No. 48, in page 52, line 4, leave out subsection (1).

Mr. Deputy Speaker: With this it will be convenient to take Government amendment No. 49.

Mr. Stewart: These two amendments deal with a point which my hon. Friend the Member for Stafford (Mr. Cash) raised in Committee. I then undertook, in consideration or his not pressing his amendments at that stage, to bring forward amendments to the same end, and that is what I am now doing. They are technical amendments which extend to subsidiaries and parents or authorised institutions incorporated overseas the right to use the name of their parent or subsidiary for the purpose of indicating the connection between the two companies. It is a minor but important improvement, and I am grateful to my hon. Friend for having brought it to light.

Amendment agreed to.

Amendment made: No. 49, in page 52, line 27, at end
insert—
'(4A) Section 64 does not prohibit the use by—

(a) an authorised institution which is a wholly-owned subsidiary of an authorised institution to which that section or subsection (4) above applies; or
(b) a company which has a wholly-owned subsidiary which is an authorised institution to which that section or subsection applies,

of a name which includes the name of the authorised institution to which that section or subsection applies for the purpose of indicating the connection between the two companies.'.—[Mr. Ian Stewart.]

Clause 66

RESTRICTION ON USE OF BANKING DESCRIPTIONS

Mr. Ian Stewart: I beg to move Government
amendment No. 50, in page 54, line 9, at end insert'—
(dd) the International Finance Corporation'.
Subsection (6) already exempts various international organisations of which the United Kingdom is a member, including the World Bank, from the prohibition on the use of banking descriptions. The International Finance Corporation is an affiliate of the World Bank, and the United Kingdom is a member of it, so it should be included in the exemption.

Amendment agreed to.

Clause 67

DUTY TO PROVIDE INFORMATION AND DOCUMENTS

Mr. Ian Stewart: 1 beg to move Government amendment No. 51, in page 59, line 32, at end insert—
'(2A) An overseas institution to which a notice is given under subsection (1) or (2) above shall comply with the notice—

(a) in the case of an institution which has established a representative office in the United Kingdom, before the end of such period as is specified in the notice: and
(b) in the case of an institution which has been given notice under section 72(l) above of its intention to establish such an office, before it establishes the office.'.

Mr. Deputy Speaker: With this it will be convenient to take Government amendments Nos. 52 to 54.

Mr. Stewart: These amendments remedy a technical defect in Clause 76 which at present does not make it clear when information requested from institutions with representative offices must be provided.

Amendment agreed to.

Amendments made: No. 52, in page 59.1ine 37, leave out 'also' and insert
'no later than the time by which it must have complied with that requirement'.
No. 53, in page 59, line 43, after 'shall' insert
'no later than the time by which it must have complied with that requirement'.
No. 54, in page 59, line 46, at end insert
'no later than one month after the amendment or withdrawal'.—[Mr. Ian Stewart.]

Clause 89

FALSE AND MISLEADING INFORMATION

Mr. Ian Stewart: I beg to move Government amendment No. 55, in page 66, line 49, at end insert 'or any other person'.

Mr. Deputy Speaker: With this it will be convenient to take Government amendment No. 56.

Mr. Stewart: As it stands, subsection (1) is defective because it does not include, within the offence of providing materially false or misleading information to the Bank of England, cases where that information is provided indirectly, but when the provider knows the information would be used by the bank for supervisory purposes. An example would be a subsidiary providing false information to a parent bank for the purposes of the parent's consolidated reporting to the bank.

Amendment agreed to.

Amendment made: No. 56, in page 67, line 4, leave out 'that person' and insert 'the person providing the information'.—[Mr. Ian Stewart.]

Clause 91

NON-EXECUTIVE DIRECTORS

Mr. Nelson: I beg to move amendment No. 57, in page 68, line 36, leave out clause 91.

Mr. Deputy Speaker: With this it will be convenient to take the following amendments: No. 58, in page 69, line 5, leave out clause 92.
No. 61, in schedule 3, page 80, line 31, at end insert—

'Composition of hoard of directors

2A. In the case of an institution incorporated in the United Kingdom the directors include such number (if any) of directors without executive responsibility for the management of its business as the Bank considers appropriate having regard to the circumstances of the institution and the nature and scale of its operations'.

No. 62, in page 81, line 19, leave out second 'and' insert '(7A)'.

No. 62A, in page 81, line 22, at end insert
'and in determining whether those systems are adequate the Bank shall have regard to the functions and responsibilities in respect of them of any such directors of the institution as are mentioned in paragraph 2A above.'.

No. 63, in page 81, line 22, at end insert
'and in determining whether those systems are adequate the Bank shall have regard to the functions and responsibilities in respect of them of any such directors of the instil ution as are mentioned in paragraph 2A above and the formal working relationships established between such directors and the auditor or auditors'.

Mr. Nelson: Amendments Nos. 57 and 58 seek to take out of the Bill those amendments which were passed during the Committee stage which provided for the statutory requirement that there should be a minimum number of non-executive directors on the board of the United Kingdom registered banks and that they should form themselves into a majority composition of audit committees with specific remits of considering the financial control structures, the scope of remuneration of auditors, and the compliance of the bank concerned with the probative provisions of this legislation.
In Committee the Economic Secretary expressed some support for the sentiments behind the representations that were made at that time and, indeed, for much of the intention of those amendments. At the same time the Bank of England itself issued a circular to banks, seeking their comments on its proposals for audit committees, involving inevitably a substantial representation of non-executive directors. Ernst and Whinney, in its interesting guide to directors entitled "Bank Audit Committees — A Guide for Directors", said:
A recent study of quoted companies by the Bank of England has shown that on average one in three directors is now non-executive and of 60 per cent. of the companies examined, the board included three or more non-executive directors.
It was always recognised that the best practices of many joint stock banks would not be affected by the amendments. We were seeking to ensure that, in the medium-sized and smaller banks, and in some more questionable banking concerns, there was a genuine independent and non-executive element which would act as a check not just on the credit analysis and policies arid on the audit and accounting requirements but also on the extent to which the bank complied with the probing provisions of the legislation.
With the background of the Johnson Matthey bank collapse, it is fair to point out that if that representation had been there, and if the right questions had been asked at the time, we might not have had the problems which subsequently arose. As we are in the business of depositor protection with this legislation, I believe — I am delighted that the Committee concurred at the time—that there was and remains a strong case to be made for non-executive directors in the banking sector, apart from the arguments that could be strongly adduced for their election elsewhere in the commercial sector.
I should like to pay tribute to my hon. Friends the Members for Harrow, East (Mr. Dykes) and for Suffolk, South (Mr. Yeo) for their support in drafting the amendments and also for their resolute support in Committees. Standing Committee can play a useful role on non-party matters, admittedly at the margins, in tightening up the provisions of the legislation and enhancing them as we have done.
My hon. Friend the Economic Secretary was good enough to point out in Committee that, while he was unable to accept the amendments as tabled, he would try to import the concept of non-executive directors and seek on Report to go beyond that in regard to their responsibilities. He pointed out—and I accepted then and subsequently—that clauses 91 and 92 would be an improper and impracticable burden to place on the banking sector, and particularly on small banks where it might not be appropriate to have such a large minimum number of non-executive directors. He referred to subsidiary banks where the holding banks might already have non-executive director representation.
For some small, authorised institutions, which, although banks, are largely inactive, and are not trading substantially, it would be a costly and not very effective means of securing a check on the audit activities and the directorial responsibilities of the boards. For that reason I discussed with my hon. Friend the Economic Secretary ways in which his supportive sentiments and the intention of the Committee might be satisfied. The result of those discussions is the amendments which have been tabled.
The amendments seek to provide a presumption that there shall be non-executive directors on the boards of banks but that the Governor of the Bank of England shall retain the discretion to waive that requirement, or vary it, according to the circumstances of individual banks. Amendment No. 61 will meet that need and add to schedule 3 a specific provision on the composition of boards of directors which can mean nothing other than that they shall have non-executive directors. I think I am right in saying that it will for the first time import into company law the concept of non-executive directors. While it is not a departure from the unitary board system and the individual and collective responsibility of all directors for the operations of the company, it will for the first time recognise and identify in law non-executive directors in the banking system. To that extent, it will be a useful paving amendment which may be built on in other parts of company law.
Many people may reasonably say that it is not sufficient to have non-executive directors and to let them organically determine in each bank or collectively what function they will have. Hon. Members will be aware that the character and the role of non-executive directors can vary enormously between companies or between banks. There is little one can do about non-executive directorships being appointments of patronage of the chairman, the chief executive or a controlling shareholder. Inevitably there will be an element of jobs for the boys in the appointment of non-executive directors of banks, or former employees may stay on in a sinecure capacity. However, they will have a non-executive function in that they will not be involved in the day-to-day business of the company.
An inevitable problem is that non-executive directors will go along to a large extent with the views, policies and

practices of the rest of the executive board. On the other hand, hon. Members will be aware of many companies, particularly public companies, where the non-executive directors guard their independence and their objectivity zealously and where the executive members of the board and members of the company have a keen interest in maintaining the objectivity, independence and impartiality of the non-executive directors. Executive directors benefit from the non-executive directors asking the right questions at the right time, and indeed asking difficult questions at a difficult time. In that way one can perhaps stave off problems that might otherwise arise. Most companies which use the practice have done so to their advantage.
To try to answer the question as to how the role of non-executive directors of banks should evolve, amendment No. 62A was tabled. It attaches to a later part of schedule 3 additional words which will ensure that non-executive directors have specific responsibility for the accounting activities of boards of directors. While they may involve different means of fulfilling that responsibility in each bank, the significant point about amendment No. 62A is that it refers back to paragraph 2A in amendment No. 61, which directly links the responsibilities of the non-executive directors for audit and accounting to their identity and to the presumption that they must be on the boards referred to in paragraph 2A of schedule 3.
That linkage is a very important adjunct to the initial amendment. The result is that amendment No. 62A can mean nothing other than that the non-executive directors are expected to form themselves into an audit committee. I understand that it is difficult and impractical to import audit committees into law at the moment. My hon. Friend the Member for Kensington (Sir B. Rhys Williams), who has been such a champion of this cause over many years, and I have sought to do this—he through his Bills and I in the amendments moved in Committee. To the extent that it is practical in law, I think it is provided in amendment 62A.
8 pm
However, there is a problem with this. Much will depend on how the banks, and the Bank of England in particular, respond to the rather wide phraseology of the two amendments, particularly No. 62A. The amendments would have the effect of taking out the advances already made in Committee and substituting these changes, but first I want to be satisfied—and I sincerely hope that my hon. Friend the Economic Secretary may be able to satisfy me—that the Bank of England itself accepts an obligation, apart from the circular which it has already issued, to follow through on the content of these amendments and to insist that where there are non-executive directors, and in many boards where there are not, there will be audit committees and they will have defined minimum remits to fulfil and a certain degree of accountability, as well as some penalty that they can impose if what they recommend is not followed. Some discussions may already have taken place, and I hope that my hon. Friend will be able to give us as full an assurance as possible concerning the intentions of the Bank of England in this respect.
If that can be done, and if I and other hon. Members can be satisfied that the Bank of England really intends to use the provisions to ensure a much wider representation of non-executive directors and that they do a job of work


within the banks, the House and our Committee will have achieved something and it will be an important landmark and an important marker for the future.

Mr. Dykes: I wish to be as brief as possible in following my hon. Friend the Member for Chichester (Mr. Nelson) with a few remarks about this cluster of amendments in his name and the names of my hon. Friend the Member for Suffolk, South (Mr. Yeo) and myself. I fully endorse what my hon. Friend said. He was remarkably skilful in keeping his speech slightly shorter than it might have been, bearing in mind that he is the principal sponsor, and quite a number of other points could have been made. I understand the reason for that and, perhaps rather agreeably for Thursday night, we have reached these important amendments somewhat earlier than might have been expected when the Committee stage began.
What has resulted from the discussions in Committee, from subsequent discussions that may have taken place informally and from the amendments on the Amendment Paper, represents what we as sponsors would suggest is the best balance of all the complex considerations in a very important piece of reform. Without getting too carried away, and with no disrespect to the Government's other changes in the Bill, which have commanded widespread support, we suggest that this is perhaps the most important part of the Bill in terms of additions to it.
The history of the Bill, as was explained on Second Reading and in Committee, stemmed from a series of unfortunate accidents in respect of one institution. It was therefore very much a repitition of the 1979 Act, but with the abolition of the two entities, which were banks or quasi-banks, making them into one in terms of any supervision or surveillance that was being constructed or repeated from the previous statute. This and the other three or four significant changes made by the Government, are the important changes to the Bill.
In putting forward these amendments tonight, we very much hope that the Government and my hon. Friend the Minister will be able to accept what has been suggested by way of a compromise. As my hon. Friend the Member for Chichester said, we do this without in any way yielding or ceding the basic elements of the strategy that was being constructed all the way through my hon. Friend's speech in Committee when the then new clauses 10 and 11 were being promoted by him and others, including myself, because of the current circumstances and difficulties and the need to increase the supervision of institutions where the public's wealth, welfare, financial interest and, indeed, moral interest to some extent, are involved.
This is also carrying out an essential reform, whatever way it may work out in detail, depending on the decision of the House tonight and the Government's reaction to these amendments, which represent something of a compromise on our part. It is a significant reform, going back to what my hon. Friend the Member for Kensington (Sir B. Rhys Williams) has been trying to do over many years, earning the plaudits and the tributes of Members of the House and people outside in so doing, in respect of companies in general. For the moment I think that we can with justification concede that there is a significant difference with financial institutions and banks and other corporate entities may be left for another day, depending on the experience of this legislation if these amendments are accepted by the House.
During the debates on these issues in Committee I was struck by the fact that my hon. Friend the Minister was in difficulties. We recognised that and could understand and sympathise with him, but unless I misrepresent him —it is always easy to do this when one is guessing—he was nevertheless anxious to try to help if possible. However, we have to admit to ourselves as well as to the House that the dropping of what are now clauses 91 and 92, as amended in Committee in favour of what we now deem to be something that might have a better chance of getting through the House, is a major step for us as sponsors of the amendments.
We hope that this will be an inducement to the House to look favourably upon our compromise suggestions and also that it will generate the support of the Government. We are attempting to meet my hon. Friend the Minister's objections and worries in Committee that we were perhaps in phraseological terms trying to overdo things and construct too tight a legislative provision, but none the less to achieve our objectives in this legislative attempt to get non-executive directors inserted for the first time into bank boards.
My hon. Friend the Member for Chichester referred to the lapsing of the specific reference to audit committees. I agree strongly with him that our substitute suggestion, amendment No. 62A, is a helpful way of our putting this forward to the House and trying to meet the Minister's worry that, textually, we were overdoing it, exaggerating and perhaps creating difficulties. Perhaps we can all agree —I say this tentatively—that the essential requirements and objectives of the original amendments in Committee can be met without too tight a legislative and textual end result in the actual words.
This would fit in very well with what was said in the Bank of England's consultative paper, which appeared perhaps somewhat miraculously, and certainly very interestingly in terms of its timing, when the Committee stage was drawing to an end. In its document the Bank of England endorsed in strong terms the idea, referred to indirectly and perhaps somewhat vaguely, for obvious reasons, in amendment No. 62A, but none the less with great emphasis, that the audit committee should have specific and clear duties, and that even if these duties were not put into legislation at this stage — although by implication the Bank of England's presenting letter had legislation in mind as a background possibility —depending on how these were to function first in a non-legislative form, perhaps later they would come into the legislation. I see that as the implication of this whole exercise even if, for obvious reasons, certain people, including the Bank of England, will wish to deny that now.
I refer very quickly to page 10 of the consultative paper and the references to what the members of audit committees should do. I hope that, under our suggested compromise amendments, my hon. Friend the Minister can react to these ideas yet again to reassure us that that is the whole direction of the Government's thinking and policy in line with the Bank of England's ideas and suggestions, even if there is no specific legislative reference now, and I say that with great emphasis.
Page 10, paragraph 5.5, of the document relates to the functions of committee members. With heavy emphasis, the Bank of England document states:
The directors appointed to the audit committee should be able and willing to accept the related responsibilitis and should have relevant experience and skills. All members of the


committee, including its chairman, should be independent of financial management and of any responsibility for the accounting, internal control and auditing functions in the bank and be free from any relationship that could interfere, or be seen to interfere, with their objectivity and the exercise of their individual independent judgment.
I shall not continue to quote from paragraphs 5.6 and 5.7 because I do not want to weary the House. However, if hon. Members read those paragraphs they will acquaint themselves with the Bank of England's suggestions. The Bank of England's suggestions felicitously fit in with our "compromise" amendments and the suggestions to which my hon. Friend the Member for Chichester referred, which are revealed in the booklet circulated by Ernst and Whinney. Unless I have overlooked something in my mail recently, I believe that that booklet is the only publication that hon. Members have received from any firm of accountants. I hope that I shall not be regarded as vulgarly promoting one particular firm. I do not know that firm personally, although I believe that it is famous.
My hon. Friend the Member for Richmond and Barnes (Mr. Hanley) is familiar with, and I believe is a distinguished member of, the accounting profession. I believe that he has declared his interest in this matter, although not of course meaning in Ernst and Whinney. My hon. Friend will agree that Ernst and Whinney's document "Bank Audit Committees—A Guide for Directors" implies that there is ground for legislation on these matters. Although the debate is still raging, Ernst and Whinney sets out in helpful, precise, elaborate detail those functions which the firm believes audit committees and their members should perform. I refer to the helpful suggestions made in the Ernst and Whinney document on pages 11, 12 and 13. On pages 14 and 15 Ernst and Whinney describe the comprehensive management functions that should be found in any corporate organisation, including banks. Within that list of functions, reference is made to audit committee functions.
Progress is thus being made. The suggestions made by the Bank of England and Ernst and Whinney are encapsulated in the amendments. However, as my hon. Friend the Member for Chichester said, giving up the purposes of clauses 91 and 92 is a big step. I do not know whether we will have the agreement of the House in this matter, and the amendments do not have the effect of the amendments that were originally proposed in Committee. It is incumbent upon the Government—I shall be interested to learn the reaction of the Opposition if they choose to intervene in the debate—to tell us their views on these matters and the way in which they can accommodate the amendments.
I want to make a point that relates to the atmospherics that were evident in Committee. I want also to echo what was said by my hon. Friend the Member for Chichester and pay tribute to the way in which my hon. Friend the Economic Secretary has tried to be helpful. This has been appreciated. None the less, in Committee we were struck by the paradoxes that we have to face. On occasions when there is no party political implication and we are debating legislation that does not raise a party battle, but arises from a consensus in that an emergency has produced a need to update legislation, to tighten supervision and to abolish the distinction between licensed deposit takers and banks—without the conventional political dog fighting that sometimes prevails—there is none the less a

reluctance by civil servants to accept changes in legislation. Civil servants, rather than Ministers, are reluctant to make changes that will reinforce and improve legislation. I believe that these changes would not cause any intrinsic difficulty for the Government, and that point transcends the political nature of the party in government.
8.15 pm
I do not believe that other European legislatures have the built-in automatic difficulties that face any Government here. I hope that I shall not annoy any of my colleagues by making that point. However, it is a pity that a macho stance must be adopted in Committee. I trust that I shall not annoy my hon. Friend the Economic Secretary when I say that there is an idea that if a concession is made, that will produce a tearful reaction. I do not mean that literally, but metaphorically. That reaction is often unnecessary. If a general feeling wells up in Committee or on Second Reading that an addition, a reinforcement, a piece of legislative material or an amendment can be brought in significantly to improve a measure, or a marginal part of a measure, there is an over-reaction.
Why is that so? We could have a great deal of philosophical discussion about that, but not tonight. However, it is a pity that that repetitive over-reaction element in legislative debate occurs in Committee. That is less important as a consideration and as a point of hesitation about the meaningfulness of our debates on the Floor of the House. It is much more obvious then that party political dog fights will occur. However, that is not necessary in Committee, particularly when we are discussing banking measures.
I hope that I have not been too long-winded. I have made that point deliberately at some length and have probably risked the wrath of hon. Members in so doing. I hold this institution very dear and believe that by and large it does a good job in promoting legislation, but all too often in debate there is a reluctance to change legislation. Perhaps, to make ourselves feel better, we can point the finger for that reluctance at the civil servants rather than at Ministers.

Mr. Tim Yeo: My hon. Friend the Member for Harrow, East (Mr. Dykes) raised an interesting point at the end of his speech. If time permitted I would like to pursue that, but as it does not I will merely say that, broadly speaking, I concur with him.
I pay tribute to my hon. Friend the Member for Chichester (Mr. Nelson) and to my hon. Friend the Member for Harrow, East. They tabled amendments on this matter in Committee and voted for them. That action distinguished them from other hon. Members. My hon. Friend the Member for Chichester has led with great skill and determination the campaign to make the changes in the Bill. I am glad that since the Committee stage was concluded he has been able to negotiate an acceptable compromise, although naturally I am disappointed that we do not have in the Bill the specific clauses that were agreed in Committee. Nevertheless, we have taken a considerable step forward.
It is especially appropriate at a time when self-regulation is under a certain amount of criticism that we should be strengthening and making specific reference to the role on non-executive directors. Only recently in the banking world self-regulation has shown that it can operate successfully and swiftly. In the aftermath of the Guinness affair, top management has been replaced in


what was considered to be one of the most powerful merchant banks. That occurred with a swiftness which could not have been achieved under a different system. Perhaps that will lead in due course to the consideration of non-executive directors in stockbroking firms. Again, recent events may suggest that that would be a desirable innovation.
It is very important, in consideration of the amendments, that we should not overstate the implications of the amendments or the Bill. Nothing that we can do through legislation will eliminate incompetence, imprudence and fraud. Those are facts of life. They are regrettable, but they exist. However, we can establish a good supervisory system and regulatory framework that will detect those abuses quickly.
The innovative nature of today's financial markets is such that new instruments will always be devised, the use of which will test the technical skill of the regulators by seeing that banking in particular is conducted in a proper fashion. We only have to note the enormous growth in the swaps market and the acknowledgment in the document produced jointly by the Bank of England and the federal authorities in America that they are so far unable to produce an acceptable definition of the weight to attach to certain instruments, including some of the new swaps, to see the truth of that. That is an example of a difficulty that will always exist about trying to regulate the banking business.
It comes back to the probity, integrity and independence of the board of directors. The provisions in this group of amendments greatly strengthen both the independence and, I hope, the probity of those directors. The role of good non-executive directors will be crucial in ensuring that banks will conduct their business properly. The establishment of audit committees would also make a substantial contribution.
When the matter of non-executive directors was raised in Standing Committee, the Minister said that there might be some problem about definition because we were introducing into law a concept that was not previously recognised. To illustrate that, I shall cite a conversation that I had with the chairman of one of the big four clearing banks. It was a private conversation, so I shall not identify him. I asked him how he saw his role and he said he regarded it as being that of a full-time non-executive. On initial reflection, that concept presents a paradox. He went on to explain that he believed his job was to represent the outside interests of the bank—the interests of the depositors and the shareholders as opposed, perhaps, to the interests of the management.
When someone in a prominent position in banking describes himself as a full-time non-executive, one is forcefully reminded of the problems of definition, because I rather suspect that those of us who have put our name to these amendments look upon a non-executive as someone who, by definition, is not full-time. Of course he may be paid for his non-executive duties and it is proper that he should be, but his full-time work or most of his work is done away from the institution in which he is a non-executive director. I should be interested to hear whether my hon. Friend the Minister has had any more thoughts about a definition in the period since the Committee concluded its debates.
I echo a good point made by my hon. Friend the Member for Chichester (Mr. Nelson). I hope that, since we have had to give up a specific reference to a minimum

number of non-executive directors being appointed and a specific reference to audit committees—because neither of those will now appear in the Bill—the Minister and the Bank of England will make clear publicly that they regard the inclusion of such directors as a matter of the greatest importance for informing their judgment about the suitability of an authorised or potentially authorised institution to be a bank. A public statement of the bank's policy and of the Government's policy about those points would be of immense value. I hope that the statement will refer not only to the matter about the number of non-executive directors, but that it will also make specific reference to the role that they could play in relation to audit committees.

Mr. Cash: I congratulate my hon. Friends on their speeches. Those congratulations are more than justified, given the circumstances in which the amendments were moved in Committee and the way in which my hon. Friends have persevered to achieve as much as they have. As my hon. Friend the Member for Suffolk, South (Mr. Yeo) said, they have not got everything that they wanted. However, that in no way diminishes the importance of the step that has been taken.
I have and will continue to have some reservations about creating what could turn out to be a rather top-heavy audit provision in relation to either banking legislation or companies legislation generally, of which banking is a part. The boards of directors of banks are governed by the Companies Acts every bit as much as directors in other companies. In the field of the non-executive director, our minds are drawn to the question of independence. That goes back to the matter that we discussed during the passage of the Financial Services Act 1986, the importance of which has become a feature of discussions in Parliament over the last few years.
Against the background of the scandals and the misfeasance that have occurred recently, some of which were serious and some of which must not be exaggerated, the notion of independence, of a watchdog, a non-executive director, is increasingly becoming a matter of policy. However, at the moment it has not been explained as such by or on behalf of the Government. The notion is becoming increasingly accepted and those of us who serve on committees and who have maintained an active interest in financial services, in banking and in the troubles that have occurred in the field of company law, are increasingly driven to the view that the independent watchdog, the non-executive director, has the function of maintaining a fiduciary relationship with the members of the company. That role is of paramount importance.
I think that section 235 of the Companies Act 1985 has provisions which require that employees should be fully informed and involved in the policy making of a company. In banks and in other companies there are also people who are called shareholders, and they have a vast interest in what is done in their name. The object of the audit committee proposal and the idea of a non-executive director are to enhance the role of fiduciary relationship which, I regret to say—I know that hon. Members will agree—has been under a considerable strain recently in certain quarters.
It seems to me that we need not merely a total and thorough investigation of the financial aspects of banking or of companies. That is well exemplified in this interesting paper produced by Ernst and Whinney and entitled "Bank


Audit Committees—A Guide for Directors". We also need an opportunity to look at the role of the board and the manner in which it exercises its fiduciary relationship. In addition to the provisions in the Bill, I should like to see provisions that are more explicitly defined and aimed at directing shareholders.
There should be a shareholders' committee to complement the role of the non-executive director. That would enable a balance to be struck between institutional investors and the small shareholder. It is a fact of present day life that in wider share ownership, the explosion in the ownership of shares throughout Britain—whether in banking or in other fields such as British Telecom or British Gas—a gap has emerged which needs to be filled. It could be filled by a shareholders' committee along the lines suggested in my Protection of Shareholders Bill and some redefinition of the role of auditor, accountant, solicitor and company secretary. That is a perfectly reasonable proposition and would provide a means whereby non-executive directors and the audit committee, which I hope will eventually come into being, will be supplemented so that they know that when things go wrong they will have an opportunity, either individually or jointly, to turn to that committee. After all, the committee would represent the members of a company, whether they be institutional investors or small shareholders, and they have an absolute right to know what is going on. If there are breaches of criminal law, fiduciary relationship, companies or banking legislation, they have the right to be informed about what is happening. I make no apology if that is regarded as a novel idea; it complements the arrangements that my hon. Friends have introduced, and on which I congratulate them. They have taken a great step forward.

Mr. Dykes: I am sorry to come back to a point that puzzled me earlier. I am not clear why my hon. Friend was so adamantly against the new clauses that we introduced in Committee and which, I am glad to see, he is now supporting. Perhaps he could explain that to the House.

Mr. Cash: Yes, I can do so easily, although adamant is not the word that I would have used. I was not persuaded at that time of their value. However, having heard the brilliant speech of my hon. Friend the Member for Harrow, East (Mr. Dykes), who could fail to be converted by the logic and emotion with which he addressed the House for about 20 minutes? Therefore, in the light of what has been discussed, I hope that what has been put forward is accepted. I want to take this opportunity to congratulate my hon. Friend the Member for Kensington (Sir B. Rhys Williams) on his determined campaign since 1969, and thank him for all that he has done in this area.

Mr. Hanley: I, too, congratulate my hon. Friend the Member for Kensington (Sir B. Rhys Williams) on his almost unique campaign. It is 17 years since he first introduced his Bill on audit committees. He has introduced such a Bill every year in this House, and when he was in the European Parliament he took every opportunity to try to introduce it there also. Few people have such determination for a cause that seems unattractive at first sight, at least on voting intentions, but

which is nevertheless right. I have spoken to his Bills and been a supporter of them since I came to Parliament. Therefore, when my hon. Friend the Member for Chichester (Mr. Nelson) sought to table new clauses 10 and 11 for the Committee stage, I leapt up to support them. It was with great frustration that I found that I was not a member of the Committee. However, I added my name to those amendments because I believed that they were the right way forward.
I was surprised when, through the courage of those who stuck to their convictions, those clauses became part of the Bill on Report. I was not only surprised but, in a way, I was awed because, for the first time in a substantive statute, my hon. Friend the Member for Kensington had seen the birth of the child that he had gestated 17 long years ago. I believe that that is longer than whales, elephants, human beings or any known living creature.
However, there was no doubt that my hon. Friend the Economic Secretary had to take advice and to suggest, perhaps in a mood of compromise, clauses that would go some way towards meeting the national mood of greater control over corporate institutions, while seeking a successful and practical method of achieving that.
I have already declared my interest as the parliamentary adviser to the Institute of Chartered Accountants in England and Wales. On behalf of all accountants, I thank the many members of the Committee who have paid the most marvellous advertising service to the firm of Ernst and Whinney for its excellent booklet. If any firm has been rewarded for its skill and effort in producing such information, Ernst and Whinney has tonight.
I should mention my hon. Friend the Member for Stafford (Mr. Cash). I may be wrong in this detail, but I believe that his grandfather was a founding father of the Institute of Chartered Accountants, and must have known the founding father of Ernst and Whinney. One can imagine those two august gentleman, in Victorian days, meeting at the origins of the institute. Little would they have realised that the grandson of one—

Mr. Cash: The great grandson.

Mr. Hanley: Little would they have realised that the great grandson of one would advertise the eventual product of the other in this House.
The Institute of Chartered Accountants believes that, although those clauses were supportive of the underlying philosophy of the initiatives, they were not practical and would not achieve their objectives. The issues raised by both clauses were considered widely by member firms in the institute and also by the committees of the institute that deal with such matters. In the light of the recently issued Bank of England consultative paper on the role of audit committees, which has already been referred to, and in the light of the response of the Department of Trade and Industry's consultative documents on the implementation of the eighth directive, these matters were given a fair airing.
It was thought that the institute should submit its advice to the Treasury. It did so in October 1985 and in February of this year when it sent a letter to the Treasury stating that the mandatory requirement for three directors could be over-onerous on certain banks, for the simple reason that the size of the bank was in no way taken into consideration in the drafting of the original clause. One could possibly agree to a mandatory requirement for


banks above a certain size, but one should allow banks under a certain size to appoint just one non-executive director to the board. The requirements created by the original new clause 10, that all authorised institutions had to retain at least three non- executive directors who would be wholly independent, took no account not only of the size, but of other factors and of the special situations of groups in which there might he a number of authorised institutions.
The institute considered that the appointment of non-executive directors should take account of the size of the bank. It also considered that the Bank of England should establish with the prospective authorised institutions, when authorisation was sought, the development and size of that authorised institution at that time. For those reasons, the imposition of the statutory minimum of three non-executive directors appeared inappropriate. There has been some discussion in the City as to where one could find the appropriate individuals to fill the places that would he created by the statute.
In any event, the institute pointed out to the Treasury that it saw good reason for the retention of a least one non-executive director in all authorised institutions. Indeed, that is the essence of the amendments that have been moved by my hon. Friend the Member for Chichester (Mr. Nelson).
The institute felt that the function and the role of the non-executive director required careful definition. The criteria expressed in the clauses appeared to restrict it, and the Bill already gave the Bank of England the right to establish that the directors of the institutions were fit and proper persons before granting authorisation. Therefore, the institute felt that it would probably be appropriate to leave with the Bank of England the responsibility for determining the suitability, or otherwise, of the proposed non-executive directors. That is what the institute recommended earlier this month, and I am glad that the compromise amendments have been tailored accordingly. I am also glad that the institute's advice was properly taken into account.
Although the original amendments will not see the light of day in the Bill as it passes to another place, this is a momentous occasion. My hon. Friend the Member for Kensington should regard this as a red letter day, not only in his life but in the life of regulation over institutions—in this case over banks, hut perhaps, in future, over companies. However, it is a shame—I am sure that my hon. Friend did not expect this—that the first gleam of light in the history of audit committees and statutes should be at the hands of the Treasury and not those of the Department of Trade and Industry.
It is remarkable that the Treasury should be so understanding of the need for this type of supervisory body. Perhaps the Department of Trade and Industry, which often prides itself as the Department of innovation, will look to the Treasury, which it often regards as a body of people who do not have the vision of technical innovation and advance which it sponsors, and learn from this Treasury legislation. I hope that the Treasury, in its rules and guidance, will set out the detailed provisions that my hon. Friend the Member for Kensington has mentioned on many occasions.
Audit committees are required by companies quoted on the New York stock exchange. Therefore, over many years, they have served not only the institutions that they have helped hut, more important, the shareholders in

them. The practicalities of audit committees are proven. In the United States, they have lasted for many years. The fact that these new clauses will lead to this type of audit committee is an important moment in the life of the House.

Mr. Nelson: My hon. Friend made an interesting and important point—it was referred to in Committee—about listing requirements on the New York stock exchange. I shall be interested in his views, not only as an hon. Member but in his advisory capacity to the institute—this matter goes slightly beyond the remit of the Bill—about whether he and the institute would favour such a requirement here. If, in the near future, this provision is not extended in company law more generally, many people will consider that there is an urgent and compelling case for the stock exchange to provide a similar listing requirement.

Mr. Hanley: My hon. Friend spoke forcefully in Committee about the advantages and, indeed, the disadvantages of audit committees. The point that he raised is relevant to these amendments. What will be the influence of the amendments upon other financial institutions? The Institute of Chartered Accountants in England and Wales has not this year stated an official view on the point, but in the past it has issued documentation setting out the role of audit committees, their advantages and disadvantages, and how major companies can set them up.
It is interesting that, in the thousandth edition of the official journal of the Institute of Chartered Accountants, named Accountancy, the editorial should be a cry for audit committees for major companies. Indeed, not long after, my hon. Friend the Member for Kensington introduced his annual Bill, to the general acclaim of those who arc fully conversant with the need for accountability in the City, and it was welcomed by many chartered accountants. It will be difficult for some authorised institutions to find an audit committee of, let us say, three, four or five people.
8.45 pm
The amendments are practical. Because the Bank of England is obliged to satisfy itself that an institution's board has sufficient non-executive representation according to its size, with suitably defined roles, before it can be authorised, the right compromise has been reached. I am certain that the Institute of Chartered Accountants is happy with the final result and would offer its congratulations not only to the founding father of the audit committee, my hon. Friend the Member for Kensington, but to my hon. Friend the Economic Secretary. With his usual wisdom, my hon. Friend the Economic Secretary has found a compromise that will be practical, helpful and, ultimately, of benefit to those who invest in banks, and surely that must be the vast majority of the nation.

Sir Brandon Rhys Williams: The clauses may prove to be an important aspect of the Bill. Therefore, the House is justified in giving the matter a few more minutes. I take the opportunity of thanking my hon. Friends, in particular my hon. Friend the Member for Richmond and Barnes (Mr. Hanley), for their kind references to my long-standing campaign to improve the ways in which the executives of companies can be supervised in the course of their work.
I must correct one point that my hon. Friend the Member for Richmond and Barnes mentioned. I do not think that I introduced the expression "audit committee" into my series of proposals until as recently as 1976. With my first Bill I tried to bring into statute the expression "management audit". The management audit was to be instituted by a shareholders' committee, as I envisaged it, very much along the lines of the Bill that my hon. Friend the Member for Stafford (Mr. Cash) has just brought in, which certainly deserves consideration by the House.
Self-regulation is part of Government policy. We must look to the Government to come forward with specific measures to enhance the way in which self-regulation works in banks and in public companies generally. Obviously, self-regulation is a matter for shareholders' natural prudence; but there is a special reason why it goes a little wider than simply protecting the shareholders' interests, and that is the enormous privilege of limited liability. If shareholders are able to rely on that serious concession, they have a duty to see that companies, or banks, as in this case, are managed in a competent and efficient manner. It is a matter of public interest and shareholders' duty.
How do shareholders exercise supervision? Over the past century or more, businesses have become so complex and so large that it is not possible for shareholders to get an accurate concept of what is being done by the executives who are appointed to make use of their assets. Different solutions have been found in various countries over the course of time. The German solution of setting up a separate supervisory board to watch, on a permanent basis, what the executive board is doing, obviously has many advantages, but that is not the way in which this country has developed its company law. While the Germans were evolving a concept of the supervisory board, we were placing more reliance on auditors. In the 19th century, it first became obligatory for companies to have an independent audit.
We have retained the concept of the unitary board, but, for some reason, in British company practice, it does not seem to be operating as well as we should like. In the United States and Canada, the concept of the unitary board has been retained, but there has been a significant development there that we have not yet followed. Of course, American banks are closely controlled by all kinds of provisions that have not been introduced here—I do not for one moment suggest that they should be—but the practice in America has been to develop the audit committee. It is a pity that we have not moved much faster in that direction. I blame the DTI for its immobilism in respect of the concept of the audit committee. Year upon year, it comes to the House to amend our company law and to add enormously to the scope of it, to add to the power of inspectors, panels, boards, the police and whoever else can bring pressure to bear on companies from outside. That is not self-regulation—one may call it what one will—but outside pressures on companies are not proving to be effective. Thus, we find ourselves in a highly unsatisfactory situation. It is not possible to open the newspapers without reading about some new, unwelcome or unsavoury development in companies and banks.
This is the Department of Trade and Industry's silly triumph. It has resisted the concept of self-regulation,

although that is the direction in which we ought to go. I am extremely glad that hon. Members on both sides of the House share my opinion about that. British practice in the supervision of the executives of major companies is too loose and, as one would expect, the executive elements become either too enthusiastic and go much too far or they become sluggish, inefficient and resistant to change and fail to take advantage of new opportunities.
In the case of the scandals that have upset us with regard to the banks—in particular Johnson Matthey, Morgan Grenfell and others, very fine and reputable institutions where things went rapidly wrong—one has to ask what the auditors and the directors were doing by allowing those situations to develop and become so disastrously out of hand. In those cases, I do not believe that the auditors or the directors were necessarily to blame. What is wrong is the system, and that is what we are dealing with in these clauses.
We must freshen up our ideas about the responsibilities of auditors and the way that we call upon them to work, and we must also freshen up our ideas about the responsibilities of directors.
I strongly recommend anybody who is interested in the subject to take the trouble to read the speeches that were made on the last morning in Standing Committee when my hon. Friends—in particular my hon. Friend the Member for Chichester (Mr. Nelson)—forced the Committee to take note of their views on the way in which the Banking Bill should be amended. The debate contained many important comments that well deserve study, and I hope that they will indeed be widely studied. My hon. Friends deserve well of their House for the courage and persistence in insisting that the Committee should take note of their views.
Over the last 100 years there has been a change in the concept of the director in British company law. If one goes back to the 1856 Act—one of the first really important measures that this House introduced in regard to company law—it was then axiomatic that the directors were all independent. The idea of their taking executive responsibilities is virtually excluded by the terms of that Act, because that was not the practice in those days. It is only in the Board of Trade Order 1906 that one finds the concept of the managing director beginning to be accepted. The managing director is really a one-man committee of the supervisory board that is running the business.
From there we have moved on and have now reached the stage where hon. Members say that to introduce into company law the idea of the non-executive director, or the independent director, would be an innovation. But the independent director is not an innovation; he is a relic, who is gradually disappearing. When one examines what those who claim to be non-executive directors are doing, one finds that they may be full-time officers of the company, or that they are serving the executives or the business in various functions and are not acting in a supervisory capacity at all. Because they are so involved in the management of the business they are unable to exercise supervisory functions. Therefore, the supervisory role of the directors is going by default.
I do not accept the idea—which I am afraid emanates from the Department of Trade and industry—that if we refer to non-executive directors or independent directors this will be a catastrophic change and a great new


intrusion into company law. It is quite the reverse. It is simply holding from further decline the status of the supervisory director.
How are we, then, to proceed, and in particular how should we proceed with regard to banks? I pay a considerable and warm tribute to the Bank of England for producing its consultative paper last month on the role of audit committees in banks. It is an excellent document. It does not mention my 1985 Bill; it refers only to my 1983 Bill, which shows just how little effect Back Benchers can have, even on those who are most supposed to know the views of this House. But never mind. I pay tribute to this excellent paper. However, it is simply a matter of exhortation.
The bank is asking the various institutions in the City to do what they think is right and to appoint an audit committee. I am afraid that if we rely on exhortation, the consequence normally is that all right-minded people who are efficient and run decently managed companies will do what they have been asked to—if they are not doing it already, while those whom one most wishes to correct, because their conduct is open to question, will find ways to use the audit committee in a manner that is perfunctory — or they may even refuse to appoint an audit committee at all. Therefore, my hon. Friend the Members for Chichester, for Harrow, East (Mr. Dykes) and for Suffolk, South were right when they suggested that the appointment of an audit committee should be mandatory.
I recognise, however, that it is difficult to legislate when there is such a wide variety of institutions, some of which are outside the scope of British company law. Even if we want changes to the law that will catch companies as a whole on a very wide scale, the House has to recognise that banks are a special case and that it is advisable to let the Bank of England exert the pressure which, in another kind of institution, it would perhaps have been better for shareholders to exert on their own behalf.
I believe that independent directors are very important and necessary in banks and that audit committees are appropriate. We must hope that they will become a regular and established feature of the management of banks. Therefore, I accept the compromise amendments that have been worked out and that have been moved by my hon. Friend the Member for Chichester and others. They barely meet the case, but they do meet it for the present, and I am willing to support them. However, I should like to make two comments.
First, the method of conducting the business of an audit committee ought to be spelt out somewhere. There is a wealth of literature on the subject that is based on American and Canadian examples. The way in which audit committees have matured in the last 10 or 15 years in the United States provides us with an example of how audit committees should be operated. If we do not give clear guidance about what the audit committees should be doing, there will be perfunctory or inadequate performance that amounts to nothing, and it will waste the time of the people involved. The Bank of England should issue a further code of practice on what constitutes model rules for the functioning of an audit committee.
Secondly, I am concerned that amendment No. 62A as it stands does not place sufficient, or indeed any, emphasis on the appoinment of an audit committee as a desirable practice. We know what the Bank of England has in mind, but if the clause stands as it does at present it will not place emphasis on the appointment of an audit committee—

hence my amendment No. 63, which I beg to move. If, therefore, an institution were aggrieved by a bank decision that it did not meet the minimum criteria — in which case it is permitted under clause 25 to appeal to a tribunal—there would be no reason for the tribunal to support the bank's opinion. Surely it would be best to allude to the relationship formally established with the auditors by the independent directors in the relevant schedule to the Bill.
I ask my hon. Friend the Economic Secretary whether he will at least agree to say specifically that the Bank of England will be acting properly if it follows up the consultation paper on the role of the audit committees in banks by insisting, where it sees fit, that the appointment of a properly constituted audit committee should be part of the minimum criteria.
I would be satisfied if the Economic Secretary agreed to that, because I believe that it would give sufficient guidance to people who might be appointed to an appeal tribunal some time in the future, to show that that was what the House intended, even though it did not appear in the actual text. Better still, I should like my hon. Friend to accept my amendment No. 63, which I believe is fully in line with the Government's policy.

Mr. Ian Stewart: I greatly respect the efforts of my hon. Friend the Member for Kensington (Sir. B. Rhys Williams) who, over the years, has advanced the virtues of non-executive directors and audit committees. I believe that he has undoubtedly played a significant part in encouraging the use of audit committees and in drawing attention to the importance of having non-executive directors in companies and, in this context, in banks.
Before I deal with the points of substance, I should like to reply to my hon. Friend the Member for Harrow, East (Mr. Dykes) and other hon. Friends who have suggested that they have not got what they wanted, but that the Bill is not a bad compromise. It is not a compromise as it would not be practicable — I repeat what I said in Committee — to introduce the type of measures in the new clauses introduced in Committee, because they have wider implications for company law. In the absence of a clear definition of the responsibilities and functions of non-executive directors and audit committees, there are areas of doubt and dispute that could cause significant problems.
9 pm
I do not wish to labour the point, but if definitions of the specific responsibilities were attached to nonexcecutive directors they would cut across the general legal position of companies and their boards. Therefore, that would have implications for other areas of company law. Directors could evade performance of their duties by claiming to be non-executive directors. A whole range of issues germane to company law make it impossible to introduce workable provisions of the type that my hon. Friend's clauses seek to provide.
There is no resistance on the part of officials or myself to such changes, but Ministers have a responsibility to ensure that legislation that is passed by this House is workable. It was on that basis alone that I differed with my hon. Friends in Committee when I said that, rather than introduce my hon. Friend's specific proposals, I thought it would be better to introduce provisions on Report that would have the same effect.
I say that by way of explanation because I am glad that my hon. Friend the Member for Chichester (Mr. Nelson)


said that he is willing, provided he is given a number of assurances, to withdraw the clauses and substitute the provisions that we have discussed and which I believe meet his needs.
I strongly support the general purpose of the original clauses and the purpose of the amendments now put forward. In Committee there was unanimity in the belief that it was desirable to move in that direction. The only difference between my hon. Friends and myself was a difference of method. In Committee I gave an undertaking to introduce measures, if they could be properly defined, along the lines which are now introduced in the Bill. Therefore, my suggestions in Committee about what should be done have not changed.
I wish to draw particular attention to the significance of the Bank of England paper on audit committees. That paper has been referred to by a number of my hon. Friends. I regard it as a positive statement and that view is shared by the Bank of England. I am aware that it was circulated to members of the Committee and I have placed a copy in the Library so that it is more widely available.
I asked the Bank of England to take account of the comments made in Committee when this subject was debated because I thought that it should be aware of the specific points made and I hoped that it would endorse the proposals. I have a response from the Deputy Governor of the Bank of England in which he states:
The Governor and I have been following with interest the debate in Standing Committee on the role of non-executive directors and audit committees. While welcoming the principles which lie behind the new clauses which the Committee added to the Bill, we entirely share the reservations about their practical effect which you expressed; and I am pleased to learn that it is intended to introduce alternative provisions on Report which will emphasise the importance of non-executive directors, whilst giving the Bank discretion as to the requirement for them in individual cases.
As my hon. Friends will recall, that discretion was on several grounds: the matter of size is relevant, but there is also a question of company structure, such as subsidiaries and parent companies. The Bank of England must take those matters into account.
The Deputy Governor then referred to the consultative paper and continued:
As you will have noticed, the tone of the paper is direct. The Bank is committed to seeing that all major banking groups establish an audit committee and that in all cases, unless there are sound reasons to the contrary, at least one non-executive director is appointed who can undertake some of the audit committee functions.
The Deputy Governor asked me to draw that to the attention of the House in this debate and I am glad to do
so. It reinforces the provisions now being proposed to be introduced into the Bill. They will be the peg on which the bank can hang its requirements, as part of its prudential supervision, that non-executive directors should be the presumption and that wherever practicable they should be involved in audit committees.
On page 80, the third heading under schedule 3 reads:
Business to be conducted in prudent manner.
Under that heading, the bank has power to apply to individual institutions the requirements which it deems to be necessary for the prudent management of business of a bank or institution of that kind. If we couple that with the clear firm statement of the Deputy Governor, I can assure my hon. Friends that that means that banks of a

certain size will be required, as part of what they need to do to satisfy the supervisor, to have audit committees and non-executive directors.
The importance of that is considerable. It will greatly strengthen the stability of financial institutions. I noted what my hon. Friends said about the implications for going wider into the company sector at large. Obviously, that goes beyond my responsibilities. I can ensure only that the Bill for which I am responsible has the appropriate provisions. Therefore, I hope that the amendments of my hon. Friend the Member for Chichester will be accepted.
My hon. Friend the Member for Kensington said he thought that it would be helpful if model rules were produced by the Bank of England, and I shall draw that to the attention of the Bank of England. The consultative paper is designed to answer several specific questions—for example, questions of size. I would not expect such rules to be available now, but after that consultative process is completed, the Bank, in that area as in all other areas where it requires certain criteria to be met for prudential purposes, will undoubtedly make it clear generally to the institutions what it expects.
My hon. Friend went on to say that, because there was no specific reference to audit committees, the bank could be disregarded in trying to impose non-executive directors and audit committees. Given that it is the intention of the bank to have such provisions, it could not be overruled. It is the Bank of England, as the supervisory authority under this legislation, which will determine, after consultation, the basis of prudent management financial institutions which take deposits. Subject to reservations on the grounds of size or structure, it will require these provisions, and would not regard the requirement that business should be conducted in a prudent manner as being satisfied unless such conditions were met.
My hon. Friend the Member for Kensington asked whether that could be set aside, for example, by the tribunal. The Bank of England certainly would be acting reasonably in insisting on that. It is not the job of the tribunal to second-guess the bank in its judgment on general supervisory requirements. I can give my hon. Friend a full assurance on those points.
I welcome the introduction into statute for the first time of a reference to non-executive directors, as defined in the amendment. This is an important development. It is not necessarily the most important matter that has arisen during consideration of the Bill. Whether or not these provisions were inserted into the Bill, that would have been the requirement in practice as a result of the supervisor's actions. Nevertheless, I welcome the amendment, because it emphasises an important development which is particularly relevant to financial institutions. I shall not try to go wider than that and say what relevance it may have to companies more generally. I note in passing that there are many companies, even quoted companies. The difficulty of recruiting suitable non-executive directors of the right calibre in setting up equivalent provisions for non-deposit-taking companies throughout the economy is a pretty daunting task. Nevertheless, in the case of deposit-taking institutions, this development will be important. Therefore, I hope that the amendments of my hon. Friend the Member for Chichester will commend themselves to the House.

Amendment agreed to.

Clause 92

AUDIT COMMITTEES

Amendment made: No. 58, in page 69, line 5, leave out clause 92.—[Mr. Nelson.]

Schedule 3

MINIMUM CRITERIA FOR AUTHORISATION

Amendments made: No. 61, in page 80, line 31, at end insert—

'Composition of board of directors

2A. In the case of an institution incorporated in the United Kingdom the directors include such number (if any) of directors without executive responsibility for the management of its business as the Bank considers appropriate having regard to the circumstances of the institution and the nature and scale of its operations.'.

No. 62, in page 81, line 19, leave out second 'and' and insert (7A)'.

No. 62A, in page 81, line 22, at end insert
'and in determining whether those systems are adequate the Bank shall have regard to the functions and responsibilities in respect of them of any such directors of the institution as are mentioned in paragraph 2A above.'.—[Mr. Nelson.]

No. 65, in page 81, line 34, after 'denominated', insert 'wholly or partly'.—[Mr. Ian Stewart.]

Mr. Ian Stewart: I beg to move amendment No. 66, in page 85, line 30, at end insert—

'Use of banking names

12A.—(1) Subject to sub-paragraph (2) below, section 64 of this Act does not prohibit the use by an institution which is incorporated in or is a partnership formed under the law of any part of the United Kingdom and is deemed to be an authorised institution by virtue of paragraph 2 above of a name which was its registered business or company name immediately before the coming into force of Part HI of this Act or of section 36 of the former Act.

(2) Sub-paragraph (1) above shall cease to apply—

(a) in the case of an incorporated institution, if the total value in sterling of its issued share capital and undistributable reserves falls below their total value at the coming into force of Part III of this Act; or
(b) in the case of a partnership in respect of which one or more designated fixed capital accounts are maintained, if the total value in sterling of those accounts falls below their value at that time.

(3) Section 64 of this Act does not prohibit the use by—

(a) an authorised institution which is a wholly-owned subsidiary of an institution to which sub-paragraph (1) applies; or
(b) a company which has a wholly-owned subsidiary which is an institution to which that sub-paragraph applies,
of a name which includes the name of the institution to which that sub-paragraph applies for the purpose of indicating the connection between the two companies.

(4) In sub-paragraph (2) above "share capital" and "designated fixed capital account" have the same meaning as in subsection (2) of section 64 of this Act and "undistributable reserves" means such reserves as mentioned in paragraph (a) (ii) of that subsection.'.

This is an important addition to the Bill. In Committee, I undertook to introduce amendments to this effect so that the use by authorised institutions of banking names just prior to the Act coming into force would be grandfathered — they would be carried forward—after the enactment of the legislation. I said that we would do what I described as great-grandfathering with the banking names which were in use by authorised institutions prior to the Banking Act 1979.

I have great pleasure in moving this amendment because it was one of those aspects of the 1979 legislation

which I remember opposing. Therefore, it is a privilege, eight years later, to be able to remedy what I considered to be an injustice at that time.

Sir Eldon Griffiths: As my hon. Friend the Economic Secretary has said, the essence of the amendment is that the damage done by the 1979 Act to a number of small but highly reputable banks — among them the Manchester Exchange Trust and Reliance Trust, the Salvation Army bank — is to be undone. The 1979 Act took away from these highly reputable institutions the right which they have exercised for a century or more to describe themselves, quite accurately, as banks. When the Bill was introduced, it would effectively have continued that prohibition by adding another criterion which needed to be met before the name "bank" could be used—an equity capital of not less than £5 million.
On behalf of the Reliance Trust and Manex—I have no interest in either—I made some detailed submissions to my hon. Friend the Economic Secretary. He received them courteously. He listened to those representations, but quite properly he gave no commitments. Subsequently, as I understand it, he had wide consultations. In Standing Committee, in response to amendments moved elegantly by my hon. Friend the M ember for Chichester (Mr. Nelson), my hon. Friend the Economic Secretary gave us the good news—he would move amendments to allow those small institutions to return to the pre-1979 situation of being able to call themselves banks.
This new grandfathering, and indeed great-grandfathering, amendment gives full effect to my hon. Friend's undertaking to the Committee. On behalf of the Salvation Army and of the directors and shareholders of the Manchester Exchange Trust, I express my thanks—first, to my hon. Friend the Member for Chichester who moved those amendments in Committee, secondly, to all members of the Committee for the support which they gave at once to those amendments and, most of all, to my hon. Friend the Economic Secretary who moved this amendment.
There is just one rather curious consequence of the amendment for the Manchester Exchange Trust. In recent years, it has become widely known in the City and among its customers and shareholders by the shorthand title of Manex. As a result of the amendment, it will have to revert to its pre-1979 title, the whole works—Manchester Exchange Trust, which is not quite so punchy a name. I very much hope that, when the Bank of England considers any request by this institution to call itself the Manex bank, it will not be given too difficult a passage. But, of course, that is a matter for the Bank of England, not for the House.
I should like to conclude by quoting some words that I used on Second Reading when I said of my hon. Friend the Economic Secretary that he was an "astute" and "civilised" Minister. I should like to repeat those adjectives but add another word which has found common currency in banking circles in recent years—my hon. Friend is a "listening" Minister. Ministers who listen learn, and they serve the Government and the House well. I am very grateful to my hon. Friend.

Mr. Nelson: I should like to add briefly to the elegant words of my hon. Friend the Member for Bury St. Edmunds (Sir E. Griffiths) and express my thanks and


tribute to my hon. Friend the Economic Secretary for keeping faith with the Committee and bringing forward the amendment. It was a great joy to my hon. Friend the Member for Bury St. Edmunds, to other members of the Standing Committee and to me to meet, subsequent to the passage of the amendments in Committee, the representatives of the Manchester Exchange Trust and of the Salvation Army. That was a small step but one that gave them great pleasure. It certainly enhanced their views as to how representation to Members of Parliament can translate itself into changes in the law. I should like to add to the tributes that have been made and say how grateful I am to my hon. Friend for making the changes that he has proposed tonight.

Amendment agreed to.

Schedule 6

MINOR AND CONSEQUENTIAL AMENDMENTS

Amendment made: No. 67, in page 87, line 4, at end insert
'and paragraph (f) shall be omitted'.—[Mr. Ian Stewart.]

Schedule 7

REPEALS AND REVOCATIONS

Amendment made: No. 68, in page 92, line 20, at end insert—


' 1980 c. 46.
The Solicitors (Scotland) Act 1980.
In section 35 (2), paragraph (f) and the word "and" immediately preceding it.'. — [Mr. Ian Stewart,]

Order for Third Reading read.

Motion made, and Question proposed, That the Bill be now read the Third time.—[Mr. Ian Stewart.]

Mr. Hanley: There has been no opportunity for me to raise one small point. I shall hold the House back for about one minute. I welcome the Bill wholeheartedly. However, may I ask my hon. Friend the Minister whether, under clause 79—which deals with information that is passed by the Bank of England on to other people and the restrictions that are imposed on the disclosure of that information—information that is passed by the Bank to an auditor will stop the auditor from qualifying his audit report as a result of that information, unless he has previously obtained permission from the Bank of England? I understand that this is not the most sensible time to raise this matter, but it is the only time. I should be happy if my hon. Friend would write to me on that matter.

Mr. Cash: I take this opportunity to thank my hon. Friend the Economic Secretary to the Treasury for the patient and skilful way in which he has helped us to conduct our way through the Bill. The Bill may not have attracted all the attention in the world, but it is a vital measure, in that confidence in the City of London will depend on the stability of the banking system. The skill with which my hon. Friend has steered the Bill through, and the way in which he has reacted to proposals that we

have put forward, such as reciprocity, audit committees, non-executive directors and the like, is indeed very welcome and we are most grateful to him.

Mr. Ian Stewart: I do not wish to detain the House for long at this stage. I shall write to my hon. Friend the Member for Richmond and Barnes (Mr. Hanley) about the point that he made.
I should like to take this opportunity to thank those officials who have assisted me with the preparation of this legislation and who have looked after my requirements and the requirements of the Committee and the House during the Bill's passage through those stages. I include in those thanks representatives of the Bank of England, who made themselves available to help on a number of matters that were of interest to hon. Members in the Committee and in the House.
I should also like to thank my hon. Friends, the other Conservative Members, the hon. Member for Thurrock (Dr. McDonald) and other Labour Members who participated in the Committee proceedings and who have contributed this evening for the generally constructive way in which the Bill has been handled. I appreciate the way in which the hon. Member for Thurrock has looked after the Bill on behalf of the Opposition.
The Bill completes a trilogy of substantial Bills that we have dealt with over the past three years. Although this Bill is not one of the most dramatic or politically contentious of this Session or of this Parliament, it is nevertheless important. It represents a significant improvement and strengthening of the system of banking supervision. The City of London and its banking systems are very important to the United Kingdom's economy and it is important, with the widening of markets and the internationalisation of business, that the City of London should be properly supervised and regulated. The Bill will take its place alongside the Financial Services Act 1986 and the Building Societies Act 1986 as part of a trio of legislation that will give a better regulatory and supervisory system in this country then in any other financial centre in the world.
The Bill's passage through the House has led to a number of changes on the Board of Banking Supervision, on the question of significant and controlling shareholders, on reciprocity, on deposit protection, on banking names, on non-executive directors and on a number of other matters. During its passage the Bill has been considerably improved, but it leaves the House in good order. I hope that it will not be too long before it is on the statute book.

Dr. McDonald: I do not intend to detain the House but I should like to express our gratitude to those officials and draftsmen who have been responsible for the Bill. It was a great pleasure not to have to consider a large number of drafting amendments during the passage of the Bill through Committee. I should like to thank the Economic Secretary for having responded to several of the points raised in Committee, sometimes by the Opposition and sometimes raised, shall we say, by one and a half sides of the Committee acting in concert. It has improved the Bill.
It is important that the banking sector functions well. Therefore, having been given new powers of supervision in the Bill, I hope that the Bank of England will use to the


full to supervise the banks and to ensure that we do everything possible to avoid the sort of scandals that have emerged over the past year.

Question put and agreed to.

Bill accordingly read the Third time, and passed.

PETITION

Mr. Alexander Ogorodnikov

Sir Philip Goodhart: I beg to ask leave to present a petition on behalf of 335 constituents and their neighbours. It is a short petition, which states:
To the Honourable the Commons of the United Kingdom of Great Britain and Northern Ireland, in Parliament assembled.
The Humble Petition of residents of Bromley, Kent area, showeth that the Soviet Christian, Alexander Ogorodnikov, is in abject conditions in a Soviet labour camp on a charge arising from his leadership of a Christian discussion group.
Wherefore your Petitioners pray that your honourable House encourage the Foreign Secretary in his representations to the Soviet Government with the purpose of obtaining Mr. Ogorodnikov's release and reunion with his wife and son.
And your Petitioners, as in duty bound will ever pray, etc.
I had hoped that it would not be necessary to introduce this petition, but I spoke to a Foreign Office Minister late this afternoon and he told me that Mr. Ogorodnikov, like so many thousands of his fellow citizens, still seems to be imprisoned because of his religious beliefs.

To lie upon the Table.

St. Christopher's Hospice

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Peter Lloyd.]

Sir Philip Goodhart: I am privileged to have St. Christopher's hospice in my constituency. For the last 20 years St. Christopher's has given comfort and care to many thousands of patients who have been terminally ill with cancer. It has also provided support for the families of those terminally ill patients. Last year the hospice staff and the home care team, which is an important part of St. Christopher's, provided help for about 1,400 terminally ill patients. That is about 1 per cent. of those who die from cancer in the whole country.
St. Christopher's has been a blessing to many of my constituents and to many who live in the neighbourhood, but it has also been an inspiration and example to the rest of the hospice movement in this country and the rest of the world.
When I went to St. Christopher's last week it was holding a three-day conference for 70 people, doctors, nurses, priests and pharmacists, from Scandinavia, on the care of the terminally ill. Last year there were 24 study conferences at St. Christopher's, mainly, of course, for doctors and nurses from this country.
The inspiration for all this is Dame Cicely Saunders, the chairman and principal founder of St. Chistopher's. She has been described by one of my constituents as a jolly saint. Certainly this remarkable woman has a warm and vigorous personality, and many people can testify to the power of her faith. It she is a saint, she is probably the first old girl of Roedean and the first holder of the DBE to qualify for this unusual distinction. On a slightly less high-flown level, it would be fair to say that she provides the same charismatic inspiration for the hospice movement as Florence Nightingale did for the whole nursing profession 100 years ago.
St. Christopher's is not just a one-woman movement. It has a caring staff of 127, of whom 105 are nurses. They are supported by an administrative and domestic staff of 100. They, in their turn, rely upon the assistance of 200 volunteers, many of whom come from my constituency.
The nurses tend to serve 18 months to two years and then take their experience back into the National Health Service. All this costs money. In 1986 St. Christopher's spent about £2·5 million and received just under £1 million from the NHS. The NHS has done rather well out of St. Christopher's. The estimated current cost of an in-patient at a London teaching hospital is £150 per night. The comparable cost at St. Christopher's is £110 per night, of which the cost to public funds is £46 per in-patient night.
The way in which the NHS contribution to St. Christopher's is calculated has grown in a haphazard way. Support levels for the hospice, for training and home care were set at different times by different people and authorities, being kept more or less in line with inflation. I suggest that the level of governmental support for St. Christopher's, which now stands at rather more than 35 per cent., should be recalculated and that the NHS should aim to meet 50 per cent. of St. Christopher's costs.
It would be reasonable if the National Health Service were to meet the ascertained cost of 30 of the 60 hospice beds, or £950,000 at current costs. It would be reasonable if the Government had met half of the home care team


costs, amounting to a further £100,000. Finally, I believe that the National Health Service should meet the whole cost of the study centre, which would be a contribution of £200,000 a year.
In other words, I am asking that the NHS contribution, which now stands at almost £1 million, should be raised to £1·25 million. I think that this is reasonable, and I am astonished by my own moderation. Many people in the hospice movement would accept that a 50:50 partnership between the National Health Service and the voluntary sector in this extremely difficult field was appropriate.
It is right that St. Christopher's should be supported by the local community, but it should not have to devote excessive energies and thought to fund raising. It should not have to worry about cutting the work of the home care team because there is a shortage of vehicles. That seemed likely only a few weeks ago. I am glad to say that the generosity of a local firm, Ancaster Garages, has recently solved this mini-problem, but such a problem should not be allowed to arise in future.
The role of the hospice movement in the care of the dying has been brought to the attention of the public forcefully in recent months because of the AIDS problem in general and because of the recent trip of the Secretary of State for Social Services, to the United States, where he looked at the care of AIDS patients. After my right hon. Friend returned from America, Dame Cicely Saunders wrote to him:
At St. Christopher's, we have for some time been debating the ways in which we could properly contribute towards the care of patients suffering from AIDS … We believe that our home care services could be developed to provide symptom control, counselling and support, possibly throughout our catchment area of south east London, providing close liaison could be arranged with local hospitals or specialist units. Such a service would lend itself particularly well to evaluation of the medical and social needs of patients and their families in the community, study of the appropriateness of community care, and definition of the type of in-patient support that is required. I should explain that we have strong reservations about the use of our existing inpatient facilities for AIDS patients. We have difficulty in meeting the present demand of those suffering from terminal malignant disease and motor neurone disease in our wards".
In a separate memorandum to the Select Committee on Social Services, Dame Cicely said:
Another concern is the fact that we have little expertise in handling young demented patients who are still active and likely to wander. Moreover, a hospice ward is a very personal place, welcoming families, with their children, to be with the dying family member. Among them, I believe, there would be many who would be extremely fearful of doing this if they knew AIDS patients were being admitted. However irrational, this fear is a very real matter, and would be an added burden on those facing the loss of loved ones.
I agree with Dame Cicely's views and I am sure that the Government will provide the people and the money to take up Dame Cicely's offer of help with the training of home care teams who would in their turn look after AIDS patients and those who were terminally ill with cancer.
So far, I believe that the National Health Service decision to set up special AIDS wards in certain hospitals is correct. Clearly a few special wards will not be adequate if pessimistic projections of the spread of AIDS are proved right. No one, whatever his medical expertise, can say for certain what will happen. Some predict that 600,000 people will die of AIDS in this country before the end of the century. We must all hope that this turns out to be a

huge over-estimate, but it could be an under-estimate. After all, the words "mutating virus", the description of the AIDS virus, can provoke a flicker of apprehension within the most celibate bosom.
As there is so much uncertainty, it would clearly be sensible for the Government to start making contingency plans for the establishment of AIDS hospices in the Greater London area, where the incidence of AIDS is likely to continue to be higher than elsewhere in the country. Here I note that the Bromley health authority, for example, has just handed over to the South-East Thames region the Lennard hospital site, which was a centre for geriatric care, and it is proposed that the South East Thames region should dispose of this site in the near future. But it has been estimated that if £1 million were spent on refurbishing the existing buildings the site could support 80 hospice beds. The Lennard site is accessible, but it was once an isolation hospital. I note that it is also reasonably close to the Wellcome research laboratory, which is also in my constituency. Wellcome has, of course, played a leading role in the development of drugs that have some impact on the control of AIDS symptoms.
Meanwhile, I note that AIDS is a disease that has come to this country from abroad, and we should clearly be wise to try to limit any increase in the pool of infection in this country. My hon. Friend who will be replying to this debate has recently reminded us in characteristically colourful terms that Britons travelling overseas can become infected and bring the virus back to to this country, and she has suggested a pleasantly acceptable way of limiting that risk.
Following recent reports in the newspapers, I am uncertain about the Government's attitude to potential foreign carriers who want to enter the country. Clearly, it would be wholly impractical to try to screen every visitor from overseas, as many foreign visitors pay only fleeting visits to this country. I note, however, that foreign students are necessarily going to stay in this country for some time and that many of them come from Africa, America and the middle east, where there is a high level of AIDS infection.
I know that there is a powerful body of opinion within and outside the Government which believes that all foreign students, except perhaps those coming from EC countries, should be screened before they come or as soon as they arrive in this country. It ought not to be too difficult to ensure that foreign students do not start their courses here until they produce a valid AIDS clearance certificate. The British Council — hardly an illiberal body — has supported the idea of an AIDS test for foreign students and I hope that the Government will make up their mind well before the next academic year begins.
Finally, having made a number of suggestions that would inevitably lead to increased expenditure on behalf of the taxpayer, I suggest that the Government should make some economies in the AIDS publicity programme.
Of course, any information campaign on the subject faces the twin dangers that it will be meaninglessly bland or offensively explicit. I have seen lots of posters and I have seen the AIDS cinema advertisement, all of which seem to me to be wastefully bland. On the other hand, some of my constituents think it offensive and ridiculous that taxpayers' money should be used to warn their 89-year-old grandmothers of the dangers of anal sex.
The Health Education Council, in a new form, is to take over responsibility for the AIDS information campaign. I do not know what budget has been earmarked for general


propaganda about AIDS. However, if money is tight, and if future campaigns are not better based, I suggest that that budget is squeezed and the money diverted to fund the sensible projects to which I have referred.

The Parliamentary Under-Secretary of State for Health and Social Security (Mrs. Edwina Currie): I am very pleased that my hon. Friend the Member for Beckenham (Sir P. Goodhart) has taken up the question of the way in which we are to care for AIDS victims, especially in the context of the excellent work carried out by the hospice movement in his constituency and by his constituents.
I want to place on record how much I value this opportunity to pay tribute to all those who give selflessly to the care of others throughout our services in the Health Service and elsewhere. However, the hospices are rather special. They bring not only a skill in controlling pain and other symptoms and a deep understanding of the sense of impending loss among patients and their relatives, but a compassion and friendship. They enable people to feel in control of their lives once again and to die with dignity. I am certain that we all hope that when our end comes, we have that opportunity.
The hospice movement has been developing that approach to terminal care since the 1960s. There are now about 100 hospices, 38 of which are run by the Health Service. I am patron of the Nightingale hospice run by the Macmillan Continuing Care appeal in Derby on behalf of the health authority. I also had a small part to play when St. Mary's hospice was established in Selly Oak in Birmingham. Many of the other hospices, like St. Christopher's, are entirely run by voluntary bodies. Altogether, they provide about 2,000 beds, 90 per cent. of which are currently used by cancer patients.
St. Christopher's hospice was opened in 1967 on a capital cost of £500,000 which, 20 years ago, was a far larger sum than it is now. That money was raised entirely by voluntary subscription. During the past 14 years, St. Christopher's hospice has achieved a worldwide reputation as a centre of excellence in the care of the dying. I am not entirely sure why my brief states 14 years. I suspect that the hospice has been a centre of excellence since it was opened.
Under the medical directorship of Dame Cicely Saunders, who is now recognised as an international authority on the subject, the hospice has pioneered methods of care based on a comprehensive approach to the needs of each patient as a total individual and, where appropriate, as a member of a family. Treatment has been directed towards the effective relief of pain without the destruction of personality in the terminally ill.
St. Christopher's is an independent hospital and a Christian foundation. Its catchment area is restricted to a 10-mile radius from Sydenham for in-patients, to facilitate visiting by friends and relatives, and a six-mile radius for home care. Most of the catchment area therefore falls within the boundaries of the South East Thames regional health authority and the remainder within the South West Thames regional health authority.
My hon. Friend the Member for Beckenham referred to the cost per patient day. 1 agree that the service at St. Christopher's, in that respect as well as in many others, is worthy of considerable attention. I understand that there are about 200 full-time and a number of part-time staff at St. Christopher's. The full-time staff include two

consultants, a senior registrar and two junior registrars, nursing staff, social workers, ward orderlies, domestics, clerks, catering assistants and a full-time chaplain. The running of the hospice is assisted by 200 volunteers who offer their services in a variety of capacities under the supervision of a voluntary health organiser. They all do excellent work. However, I suspect that in the Health Service, where our costs are somewhat higher per patient day, we could not expect to run such a service on the basis of half paid staff and half volunteers as occurs at St. Christopher's. I am not saying whether or not I wish it were so: I merely point out that the Health Service substantially relies on our excellent paid staff.
St. Christopher's hospice is independent of the Health Service and is administered by a council of management chaired by Dame Albertine Winner. The council members include Dame Cicely Saunders, Dr. West and Dr. Gillian Ford. All the capital costs of the hospice come from private sources. I mentioned earlier the £500,000 raised by voluntary subscription. Revenue costs are borne mainly by contractual arrangements, chiefly with the regional health authorities that I mentioned. Some patients contribute to the cost of their own care, either from their own money or through one of the provident associations.
It is the firm policy of the hospice not to exclude patients on financial grounds. Apart from the National Health Service, which my hon. Friend mentioned as a source of direct funding, there are several other public sources of funding, which assist or might assist the hospice and the hospice movement. For example, Drapers wing is funded by the local authority social services department, from which the residents are drawn, in combination with personal payments by some of those patients.
The out-patients' department is funded by grants from the DHSS through the South East Thames regional health authority. Supplementary benefit of up to £230 a week is available for terminal care patients who qualify and is paid for many such patients in nursing homes which make a charge. That benefit is payable only if a charge is regularly made.

Sir Philip Goodhart: Many people in the hospice movement think that this form of financing is not entirely appropriate. There are problems in trying to get hold of that money. The nearly £1 million about which I spoke covered the generality of Government support.

Mrs. Currie: I understand the point that my hon. Friend makes. I merely make the point that the additional needs of terminally ill patients in such establishments as nursing homes are already being recognised by the payment of £230—should the nursing home be set up in such a way that a claim can be made. I also take my hon. Friend's point about how the system functions.
I understand that the hospice needs to find about £55,000 each month in order to pay its running costs. This amount comes chiefly from bequests, open days and appeals. The hospice is supported to an extraordinary extent by local people. I am sure that they derive great satisfaction from the opportunity to show their gratitude for the work of this marvellous place. Despite the tightness of the running costs, I understand that the hospice is planning a modest expansion, which will include a patient day centre. I am sure that that will be most welcome in the area.
In general we do not make central finance available to voluntary hospices as such, but the local health authorities


can assist them and the level of support around the country varies from nought to 80 per cent. of revenue costs. We estimate that the average is about 35 per cent. and that is about the level of funding which St. Christopher's attracts at the moment from that source.
Where a hospice plays an essential part in a health authority's overall plan, we expect that authority to make an appropriate financial contribution. We take rather a firm view on that. As well as making a grant, a health authority can contract for beds and can donate or let surplus land or buildings. I understand that in Birmingham in the very early days we were also able to assist in one or two quiet ways with secretarial assistance, office accommodation and the like. There are various ways in which such help can be given.
The precise level of spending on specific services and support for individual local hospices should be left for health authorities to determine. Health authorities will have a lot more money to spend in the coming year. Our plans for the year starting in April provide for an increase in overall allocation to health authorities in England alone of £626 million. That is 2·2 per cent. above forecast inflation. We shall, in addition, allow them to retain benefits of cash released through cost improvement programmes that are planned to achieve £150 million in the current year. We have made an allocation of £4·4 million for 1987–88 to the three Thames regions that together care for 75 per cent. of the AIDS cases that my hon. Friend the Member for Beckenham has mentioned.
My hon. Friend the Member for Beckenham has rightly drawn attention to the tragic and growing need for terminal care for this new group of patients suffering from AIDS, many of whom are young people who would otherwise have had the greatest part of their lives to which to look forward. By 31 January 1987 AIDS had already claimed the lives of 355 people in the United Kingdom. This year we expect 1,300 cases and next year 3,000 new cases. We expect that the cumulative total of deaths by the end of next year will be nearly 10 times the present number.
Most of us prefer to be treated in our own homes among family and friends and in familiar surroundings, whatever our illness. A hospice may be the choice for some and it may be the solution in their circumstances. Inpatient care may be appropriate for active treatment of certain phases of illness, but towards the end a different approach may be needed. I hope that my hon. Friend will agree that we need a full and varied spectrum of care facilities.
We are about to ask all health authorities to examine their current services for the terminally ill, including AIDS patients, and to plan to fill any gaps, if possible by collaboration with the voluntary sector. On 3 March a circular on terminal illness will be sent to all regional general managers, district general managers, special health authorities, family practitioner committees and community health services — in other words, to all the appropriate bodies. I shall arrange for a copy to be placed in the Library of the House of Commons and for another to be sent to my hon. Friend, who has shown such a caring interest in this subject.
In addition, my right hon. Friend the Secretary of State for Social Services intends to hold a conference before Easter on the provision of care for AIDS sufferers outside

hospital. It will bring together the experience of those in the relevant professions, the statutory and voluntary services and the churches. The intention is to indentify more clearly the priorities and responses for the years ahead. As my hon. Friend knows, the Secretary of State recently visited the United States of America and was impressed by the innovative approach to community care there, especially in San Francisco, where the average length of in-patient stay during the progress of the disease is 12 days, compared with 31 in the United States of America as a whole, and at least 50 in England. My right hon. Friend will report to the conference on what he learned on his American visit.
There is clearly scope in this country for the community-based patient care of AIDS sufferers. In the United States, care is provided at the patient's home to supplement or replace hospital care, according to individual circumstances. That can include the administration of medicines with nursing supervision and the use of infusion fluids and antibiotics. In other words, there are possibly no limits to what can be done outside hospital.
My right hon. Friend told me that in San Francisco the volunteer community agency, SHANTI, works with the city to provide small-group housing for patients with AIDS who would otherwise be unable to be independent. Patients may share an apartment and be regularly monitored by volunteers, who alter the services as the condition of the residents changes. Residents also help to care for each other. Obviously, there is a great deal to learn from all those developments. I have no doubt that those who are experienced at caring for the terminally ill, for example those working at St. Christopher's, will have much to offer us in their contributions on this subject.
The hospice movement in the United Kingdom has traditionally offered care to cancer patients. There has been some concern about whether it can offer an appropriate service to people who suffer from AIDS. I know that in the past the council of management at St. Christopher's has found that the hospice was not the right place to care for those patients. There are 130,000 deaths from cancer each year, 20,000 of whom are patients who will spend some time in a hospital bed, and the hospices have therefore felt unable to admit patients from other specialties. However, I am glad to know that Dame Cicely Saunders and others from St. Christopher's will shortly visit the chief medical officer, Professor Sir Donald Acheson, to discuss how the hospice might become involved in the care of AIDS patients. I understand that some other hospices will admit AIDS patients by agreement with the local health authority. One hospice specifically for AIDS patients, known as the London Lighthouse, is being planned. We are presently considering what financial assistance we can offer.
As well as 100 United Kingdom hospices ranging from two beds upwards, there are about 125 home care teams involving over 300 nurses. Much of this is funded through the Health Service direct. We also have about 25 hospital support teams in NHS hospitals, providing help and advice to dying patients in the hospital—

It being Ten o'clock, the motion for the Adjournment of the House lapsed, without Question put.

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Peter Lloyd.]

Mrs. Currie: Many hospices are developing day care units which patients living at home can attend. There is


clearly scope for a hospice-in-the-home approach, rather similar to the San Fransico movement, involving widespread support from volunteers in the community. Perhaps as much as anything, the experience of St. Christopher's in motivating and organising volunteers to help and work with people in the direst straits at the end of their lives might be one on which we can draw. To put the matter in context, about 35 per cent. of cancer patients die at home, 60 per cent. die in hospital and 5 per cent. die in hospices.
If the existing hospices choose to take AIDS patients—the choice is theirs—they will need help and support on education and training for staff. In the coming financial year, we have allocated £200,000 to our two AIDS counselling training units at Paddington and Bolton so that they can double the present training capacity and offer courses to community health staff, personal social services staff, hospice staff, and anybody else who requires it. As well as counselling training, the units offer valuable advice and support to care staff on the many issues that arise in the care of AIDS patients. We hope, too, that the educational resources of hospices will be available to staff who undertake the care of AIDS patients. In other words, we see that as a two-way process. We look forward to close co-operation on education and training.
I heard what my hon. Friend said about the advertisements. We have come a long way in six months. Last year, most people did not even know what AIDS was. This year, in our recent independent survey of people's reactions to the current campaign, we have established that about 95 per cent. of people have seen one of the advertisements. That is a remarkable achievement already. Around the same number of people — 95 per cent. —think that we are right to have this campaign. Around 80 per cent. now feel confident that they know enough to avoid catching AIDS. I remind my hon. Friend that that was one of the objectives of the campaign. There is clearly still some hestitation about what does not cause AIDS and what processes in normal life are perfectly acceptable and will not cause the passing of AIDS, but at the moment public education is our only vaccine.
I take my hon. Friend's point about the good lady aged 89. I merely suggest that, to have read about any kind of sex, she must have picked up a sealed envelope that clearly had a message printed on it in large type about what was inside. She must have read the message. She must then, nevertheless, have opened the envelope and, no doubt, sat down somewhere to read it.
We have thought long arid hard about what should be in the leaflets. We needed to get them out as quickly as possible. I am sure that my hon. Friend will agree that, to try accurately to extract the names of, say, elderly people from what might have been out-of-date censuses or electoral registers would have been an almost impossible task and widely open to error. Indeed, there might have been some older people who would have been offended at being left out. We should recognise that there is a risk to the whole population and that the whole population needs to be included in a campaign of this kind.
The most serious counter-argument that I offer my hon. Friend was made by the Secretary of State in the debate on AIDS late last year, which is that we may have to risk offending some people in order to promote the greater good of the country as a whole. I hope that my hon. Friend can accept that.
Suggestions about the screening of students and visitors are due to be considered by the Cabinet Committee that is now so ably chaired by my right hon. Friend the Lord President of the Council, to whom I am sure my hon. Friend would like to add his words of thanks for the excellent work that the Committee is doing. I share my hon. Friend's misgivings about the practicality and the expense of screening everybody who comes to the United Kingdom, or who may be returning to the United Kingdom after a visit abroad. Whether it is practical and in the interests of the British people to screen particular groups will be for the committee to decide.
I began by paying tribute to the hospice movement in general and I shall close by saying a few words in particular about St. Christopher's. The sympathetic and honest relationships that have developed at St. Christopher's between patients, relatives, nursing and medical staff are a shining example in a dark world. Death has been recognised as a part of life and as a family affair. The bereaved are not only counselled, advised and assisted; they are uplifted and helped towards a better understanding of our lives and souls as human beings.
AIDS is a growing problem. This year we expect a further 1,300 cases. If St. Christopher's can help — by advice, training, counselling and support — it will help AIDS patients and their families and, in the end, perhaps it will help all of us to come to terms with this terrible scourge.

National Health Service (West Midlands)

Mr. Iain Mills: I am most grateful to be called so late to raise a number of matters concerning the National Health Service in the west midlands and their effect upon my constituents and others.
Expenditure on the National Health Service rose by over 20 per cent. in real terms between 1978–79 and 1985–86, and it will continue to rise. It accounts for £18 billion or £19 billion now, compared with £7 billion or £8 billion in 1978–79. That is a considerable increase in expenditure, and I wish to say a few words about the way in which this vastly increased expenditure is affecting the west midlands.
I wish to make some helpful, good and buoyant points on behalf of normally silent colleagues like my hon. Friend the Member for Staffordshire, South-East (Mr. Lightbown), who tells me that the establishment of the first part of the new district general hospital in Tamworth is extremely welcome to his constituents. As I live three or four miles away from that hospital and almost adjoin my hon. Friend's constituency, I, too, welcome it.
My good friend, the normally silent Member of Parliament for Warwickshire, North (Mr. Maude) —an area that I used to represent before the boundary changes — is as pleased as I was, when I represented that constituency, about the extension of facilities at the George Eliot hospital. As a resident of the area, I suppose that it would be the hospital to which I should be taken if I were taken ill. Therefore, I feel even more strongly that the extension of those facilities is most appropriate.
Having represented the area until the boundary changes, l am sure my hon. Friend will not mind my saying how strongly he and I feel that that expansion is extremely good news. It is of direct consequence to my constituents and to those of my hon. Friend the Member for Solihull (Mr. Taylor), as Meriden and Solihull represent the two parts of the borough of Solihull. I ask my hon. Friend the Minister to refer to the splendid news a few months ago about the establishment at last of a district general hospital for Solihull. That news has been received with joy in the villages of Meriden, Hampton-in-Arden, Berkswell, Knowle and Dorridge, who will use that hospital, as well as by the people who live in the urban parts of Solihull who are represented so ably by my hon. Friend the Member for Solihull. The cost involved is more than £20 million. I do not wish to appear mean to my hon. Friend the Minister, but the sooner we get that hospital the better. It is extremely good news.
I wish to pay tribute to those who served in the inadequate facilities of the elderly, existing hospital in Solihull. I am sure that nurses, doctors, patients and those who represent their interests will keenly look forward with much joy to witnessing my hon. Friend the Minister cutting the tape and opening the first of the new wards when the new hospital is established.
The resource allocation — the RAWP formula—has caused some difficulties. In the north of my constituency there is an area known collectively as Chelmsley Wood. It encompasses the council estate area of Chelmsley Wood, the Kingshurst constituency and parts of Castle Bromwich. We have a large population of elderly, socially

deprived and disabled people. Inevitably, their medical needs are large and they must look to east Birmingham as well as Solihull for their treatment.
In the past, I have been critical of the RAWP formula and the way it has coped with cross-boundary flows. I welcome the working party's report and I wonder whether my hon. Friend has any comments on the presentation of cross-boundary flow and the adjustments that may be allowed to cope with an area like Chelmsley Wood. Chelmsley Wood is in the Solihull district health authority to which I pay tribute. The chairman and chief executive of that authority, Mr. Black and Mr. Jackson, do an excellent job.
In the past I have felt that the RAWP calculation did not sufficiently allow for the large number of people who have specialist needs and who must cross to the east Birmingham hospital for treatment. I hasten to add that Birmingham is a friendly area—we are all Birmingham people in the Chamber tonight.
I wish that RAWP could cope with the extra allocation that is needed. That would help east Birmingham hospital which, as the Minister will be aware, has faced great difficulty because of the temporary closure of a number of wards. I was pleased to hear from the Minister that that temporary closure had resulted, not in a turnover of fewer patients per bed, but in the treatment of more patients per bed. That was due to the adjustments that the hospital made in answer to the demands made upon it. The hospital's approach was excellent.
It is important to pay tribute to the regional health authority that has had great difficulties during this period. I congratulate the Government on their allocation of funds, both capital funds and the recently announced increase that will give the west midlands a 6·7 per cent. revenue increase in the resource distribution.
I also pay tribute to Mr. Jim Ackers, the chairman of that authority, and the officials for the way in which they have transformed that authority to the benefit of my constituents who travel to that authority for treatment. The establishment of the Solihull district general hospital is welcome. My hon. Friend the Member for Staffordshire, South-East welcomes the establishment of the first stage of Tamworth hospital. I only hope that the Minister can give us further good news tonight.
I hope that the Minister tikes note of the fact that, in this debate, I have welcomed the establishment of better hospital facilities and pressed for a recalculation of the RAWP and to take account of its effect upon the Chelmsley Wood cross-boundary flow to east Birmingham hospital, but I also ask her carefully to consider the needs of the elderly and disabled who live in Hockley Heath, and their desire for a general practice in that village. Ideally, a pharmacist should also be part of that practice.
How will the RAWP announcement and the recent announcement of extra moneys for the National Health Service in the west midlands affect waiting lists throughout the region? If there is anything that my hon. Friend the Minister can say about that or the capital plan, I should be most grateful.

The Parliamentary Under-Secretary of State for Health and Social Security (Mrs. Edwina Currie): I am delighted to have this opportunity to speak a little about the good work of the West Midlands regional health authority and to congratulate my hon. Friend the Member for Meriden


(Mr. Mills) on seizing his opportunity this evening with such alacrity. It is good to see my hon. Friend the Member for Staffordshire, South-East (Mr. Lightbown) present. I know that my hon. Friend the Member for Warwickshire, North (Mr. Maude) wishes to be associated with my hon. Friend's remarks.
I always think it is a great pity that elevation to the Whips Office means that excellent speakers cannot speak in the House as they previously did with such determination on behalf of their constituents. I assure the House, as one who must sign many hundreds of letters to colleagues every week, that they are among the most assiduous. They are undoubtedly looking after their constituents with the greatest determination.
I should like to thank my hon. Friend for his compliment that all hon. Members present were made in Birmingham. Although I am not Birmingham born and bred, I spent 11 years there as a councillor and as a member of various health authorities. I have always been delighted to be known as Brummagemware — a bit brassy, a bit hard, but jolly useful. Whether I have "Made in Birmingham" stamped on me, and where, is another matter.
This morning I had the opportunity to open and was pleased to open in the west midlands the Scott Atkinson centre for the Bromsgrove and Redditch health authority. We all had a thoroughly enjoyable time. The new centre cost more than £200,000 to build and was paid for with money that the health authority had generated from the disposal of surplus land. I congratulate all concerned in the west midlands and in the individual district health authorities for the vigorous way in which they have converted property which is no longer required for service into cash and then into further services for patients.
The centre I visited today is for pre-school children with developmental difficulties and its excellent work will ensure that when those children attend school they will have every chance of progressing normally and not of developing problems in later life. I thought it was excellent. I also had the opportunity to visit a joint funded community home for the mentally handicapped where I had lunch with the residents. That, too, was a delightful experience.
To return to the source of the money for the Scott Atkinson centre, so far land sales in the west midlands have realised £10·5 million and we expect further sales totalling £4·5 million. That is a valuable supplement to the £800 million which the West Midlands regional health authority plans to spend on new capital schemes over the next 10 years, some of which have already been briefly mentioned.
The health services in the west midlands, since I have lived in the region, have improved dramatically and I am sure that my hon. Friends would want to be associated with that remark. Historically the region received substantially less than a fair share of the national cake, taking account of the population and the needs and health requirements of its people. Many local people had to trek to London for health care or, indeed, to do without. As a Member of Parliament who represents a Trent constituency, I put it to my hon. Friends that it was even worse where I now live. However, the west midlands had considerable difficulties.
The Government are committed to redistributing resources to where the patients are. This year, 1986–87, the west midlands has received a cash increase of 8·5 per cent,

which is well above the level of inflation. That has taken its budget to more than £1 billion. Next year—which starts in April—there will be a further cash increase of 6·7 per cent. In addition, many health authorities are releasing additional resources through greater efficiency which they can then spend on priority areas. The growth money is now funding a considerable improvement in services.
I mentioned the capital programme. New hospitals are being built, not only in Solihull and Telford but in Tamworth, Bromsgrove and Redditch. There is also a major rebuilding programme in Birmingham as the old single specialty hospitals close and are replaced with new facilities on district general hospital sites. We shall be sad to see the old accident hospital go. The facilities that we are building for the next century, which we hope our sons and grandchildren will see standing, are being planned and built right now with the money that the Government are providing.
The Health Service in the west midlands is expanding rapidly. The total number of staff employed by health authorities in the region increased by 11 per cent. between 1978 and 1985. The number of direct care staff — doctors, nurses and professional and technical staff — increased by 21 per cent., which included an 18 per cent. increase in the number of doctors and dentists and a 19 per cent. increase in the number of nurses and midwives. The west midlands now employs 4,000 more nurses than it did in 1979. Let it not be said that that was simply because we cut the hours. We did cut the hours, but we funded that with extra hours provided by paid staff. Over and above that, we have also funded growth considerably.
All the categories of hospital activity in the region show significant increases in the number of patients treated. For day cases—patients who until a few years ago may have had to undergo a spell of in-patient care—the increase between 1978 and 1984 was more than 50 per cent. In parallel, the number of in-patients treated increased by 19 per cent. and the number of out-patients increased by 11 per cent.
Solihull health authority covers the constituency of my hon. Friend the Member for Meriden. He is right: some exciting developments are taking place. There has already been considerable growth. The number of in-patient cases treated rose between 1982 and 1985 from just under 17,000 to nearly 21,000. The number of out-patient cases has gone up from 83,000 to 87,000. However many satisfied customers we have in Solihull, there are many more now than there were in 1982 and when the Government took office in 1979. The amount of revenue money allocated to the authority has risen from £21·5 million in 1982–83 to £26·5 million now. That is a considerable increase.
My hon. Friend asked for more details of what is planned in Solihull for the new hospital. Phase 1, which will cost £1·1 million and is due for completion in 1988, will be for diagnostic services, particularly for the district pathology service. The laboratories of our health authorities are assuming a bigger and bigger part in the planning that we have to make. As we increase the importance of prevention and diagnostic and screening services, the laboratory is an essential part of what is happening. We must ensure that our staff are able to work in good, clean and safe facilities. I am glad to see that this is the first stage of that movement.
The main phase, phase 2, which will cost £23·6 million, is due to open in 1993. It will comprise 155 acute beds. 96


geriatric beds, 72 mental illness beds, four theatres and, I understand, seven X-ray and other suites for diagnostic services, as well as the full support services. It will be a showpiece in the west midlands. I suspect that, knowing the calibre of people who will work there, it will be a showplace for the whole country. I am delighted that that development has been announced. We look forward to seeing it go ahead at full speed and providing services to my hon. Friend's constituents.
Many of those services are currently being provided in east Birmingham, the neighbouring district health authority. One of the results has been a build-up of waiting lists in east Birmingham. The long-term solution is to build the new hospital in Solihull. Many patients cannot wait that long. My right hon. Friend the Secretary of State made a major announcement this week about waiting lists and the money to be allocated to them in the two years starting April. The announcements which we have heard this week refer to the year starting in April, and we expect people to get cracking right away. In the West Midlands regional health authority, in March 1986, a year ago, 78,000 people were on the waiting list. The total number waiting over a year was 22,000 people, or about 28 per cent. In our view that was unacceptable, even though the number had been at its peak during the strikes that had been supported by various hon. Members who normally sit on the Opposition Benches, but who are not in attendance tonight.
An allocation of £2·88 million has been made to the west midlands. We understand that this will mean that 12,300 extra in-patients will be treated, which will include, for example, 266 extra joint replacements and 860 extra cataract operations. Discussions are still continuing on the exact allocations in east Birmingham, but I understand that we can expect allocations of about £41,000 for ear,

nose and throat waiting lists and about £70,000 for ophthalmology waiting lists which, of course, will be particularly helpful for elderly people waiting for cataract and other operations. I understand that the authority also gives a high priority to trauma and orthopaedics. It has requested a substantial sum, but the exact allocation is being discussed. Trauma and orthopaedics are major elements in waiting lists all over the country. The excellent facilities throughout the west midlands need to be coordinated to ensure that the best service is given.
As my hon. Friend knows, I am constrained in making any comment about the primary care services in Hockley Heath because of the ways in which the system is functioning and the appellate function of my right hon. Friend the Secretary of State. I was deeply impressed when my hon. Friend the Member for Meriden came with a constituent to talk about these services and discuss his concern that people in villages in his constituency should get the very best service. My hon. Friend is right. I represent a rural area, which is not all that dissimilar from his, and I must say that the people in our villages deserve the best service that we can get for them. The problem is that the Health Service has to pay for all this. Our obligation is to ensure that that money is allocated as efficiently as possible. We therefore take into account everything that has been said by my hon. Friend on behalf of his constituents.
In these ways, therefore, we are ensuring that the west midlands is getting its share of the cake. We expect that the west midlands people will do as they always do and spend that money as efficiently as possible. We look forward to improved health care for all the people of the region.

Question put and agreed to.

Adjourned accordingly at twenty-seven minutes past Ten o'clock.